As the economy starts to reopen and you look to rebuild your business, gaining control of your cash flow management can help you make the most of your financial resources.
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 P&L 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 and those that need to be adjusted. Perhaps you need to diversify your products, offer your clients electronic bill payment, or invest further in an online presence.
How are my competitors doing?
Benchmarking your organization against other players in the same industry can provide valuable data.
There will be market gaps left by businesses that have 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 how much will it 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 how you project cash flow and ultimately guide your decisions.
Perhaps you decide to invest in new marketing campaigns, 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.
Cash flow projections can also help you see how long funding will last. This can be useful if you are weighing different funding options, such as SBA loans, credit cards, or small business loans.
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 Payments, 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.
Make use of accounting software that automatically creates a cash flow management system with FINSYNC’s all-in-one accounting platform.