Four financial considerations for businesses as they operate in today's economy
Adam McDiarmid //July 1, 2020//
Four financial considerations for businesses as they operate in today's economy
Adam McDiarmid //July 1, 2020//
For a few years, we have all been watching the skies for the economic indicators that would signal a recession. After an extended expansion economy following the 2008 financial crisis, many economic forecasters believed a recession was imminent.
Then 2020 took everyone by storm. Not only have we been faced with the toll of a global pandemic, we’ve also seen international and domestic unrest, unemployment, oil price wars and more. As we wade through this turbulence, we may need to buckle up for an extended economic downturn and recession as we search for a COVID-19 treatment and transition back into a more robust labor market and revived consumer demand.
Below are some key financial considerations for businesses as they operate in a stressed economy.
Cash and liquidity are king in today’s business world. Many business owners focused much of the spring on employee and customer safety measures, supply chain constraints and taking stock of liquidity. Now is the time to focus on adjusting expenses and processes to generate and protect business cash flow.
Business profits are not the same as cash flow, so don’t look to your profit/loss statements to determine if you have enough cash to cover you. Now is the time to dig into the details of your business’s financial statements to see what you have in cash reserves each month, and what your income/payment cycle looks like.
Your cash flow projections should be able to tell you the cash you have right now, and a projection for what your cash will likely look like in six months. If you’re in an industry with long payment cycles, like freight or leasing companies, you will likely need to forecast more aggressively to truly see what your business cash flow and income amount to.
With the market up and down, uncertainty rules the day, which means maintaining enough cash to handle your day-to-day operations is critical. Defending your cash may be just as important as generating it as we look at a potentially longer recovery timeline. Some strategies to consider include:
No one likes budget cuts, but nearly all businesses need to implement them at some point. If you haven’t yet revisited your 2020 budget, you are overdue in facing the music. What may have looked like a perfectly reasonable allocation in December 2019 is likely no longer on the docket for the year. Conversely, funds you may have set aside for a new project may have been absorbed into expenses related to the pandemic.
One tip to consider: don’t just start slashing willy-nilly. Being strategic about budget cuts now can help your business recover when the market picks back up. Start here:
Once you have a handle on your current business cash flow, you can turn your eye to generating more income. While it’s a tough market for many industries, it’s important to stay nimble, highly aware of customer needs and strategic in your decisions. Even if your business is struggling to capture new clients, there may be some ways to optimize sales and access cash.
As you take stock of your liquidity and consider strategies for the remainder of 2020, now is the time to be in touch with your business banker. Your banking partner can help your plan for managing market uncertainty and help you build contingency plans for liquidity, debt management, accounts receivable tactics and more.