As the economy starts to reopen and you look to rebuild your business, gaining control of your cash flow can help you make the most of your financial resources.
As the economy slowly starts to open back up, many small business owners are starting to ask, “How are we going to get back on our feet?” While there are endless ways to rebuild, many business owners face limited financial resources and simply can’t afford to experiment. That’s why we’ve put together a three-step process you can follow which is rooted in one of the most important concepts for business success: Cash Flow Management.
Cash is the lifeblood of any small business, and, in times of crisis, it’s especially important to understand how you make and spend your cash. Let’s take a look at how you can effectively adjust to your new business reality.
Step 1: Assess the Damage
Before you make plans for rebuilding your business, you need to fully understand your current situation.
Start with the financial side of the business. Before you sit down to do a cash flow projection, look at your profit and loss statement, and compare it to previous months or years. This will provide you with a concrete number (rather than guesswork) that reflects how much your small business has actually changed. Consider hiring an accountant to help you with this step to ensure an accurate result.
Secondly, you need to look at other changes in your business: layoffs, vendor relations, lost customers, etc. Factors like these will have an impact on how fast you can rebuild your business.
Step 2: Identify What Changes to Make Going Forward
There is no doubt that COVID-19 has changed your business landscape significantly. The way you and your competitors operate, and your customers’ needs have changed significantly. To understand how your business is going to adjust to these new circumstances, ask yourself the following questions:
What are my new strengths and weaknesses?
Take a look at the parts of your business that are working well, and those that need fixing. Perhaps you need to diversify your products, offer your clients new payment methods, or invest further in an online presence.
How are my competitors doing?
There will be market gaps left by businesses that closed down. You may decide your company can fill those gaps by itself, or there may be opportunities to partner with past competitors as you try to rebuild your businesses.
What do my customers need?
Now is a good time to start planning out how you are going to rebuild your customer base. Depending on your industry, the exact process is going to look different. Some customer groups will need urgent attention, while others will need some space.
How has my industry changed?
An overall analysis of your industry is probably a good idea as well. What has changed? What do you need to do to adapt to new circumstances? And most importantly, how much is that going to cost?
Step 3: Look at Your Future Cash Flow
Now, for the most important part of rebuilding your small business: cash flow analysis. The information from the previous steps will influence what your cash flow projection will look like, and ultimately guide your decisions.
Perhaps you decide to invest in a new marketing campaign, rehiring employees, or stocking up on inventory for a new product line. Before making any of these decisions, you need to evaluate how these investments will impact your expenses and revenue. Chances are, you have several things you want to implement, and a cash flow projection will tell you if you can afford them or not.
To get the most out of cash flow projections, capture each course of action in a financial scenario. This way you will be able to see how each option will impact your business. You can do this in a spreadsheet, but cash flow management software will make the process easier. Ultimately, you want to be able to compare different cash flow projections and make educated decisions.
FINSYNC provides cash flow management tools, projections, and “what if” scenarios that tie into your accounting and bookkeeping to help you assess your financial health and adjust accordingly. With FINSYNC Pay, you can improve your cash flow by paying vendors with credit cards even when they traditionally don’t accept credit card payments.
Rebuilding your small business can seem daunting. If you think there are too many things to take care of right now, we recommend making a cash flow projection immediately. This exercise will help you make informed decisions about the future of your business.