Cash flow management is a critical exercise during uncertain times like these and one that is top of mind for every business owner.  It involves managing every aspect of the business that can have an effect on cash inflows or outflows, including focusing on accelerating inflows, prioritizing spending, and overall allocation of valuable resources.

Where do you start with cash flow management?

A practical approach to managing liquidity challenges includes the following:

• Model cash flow projections for different levels of best and worst-case scenarios
• Look for ways to improve billing practices (early and often)
• Tighten controls around customer exposure and collections
• Communicate with vendors and extend payment terms where able/necessary
• Analyze if potential cost reductions are necessary including:
  • Discussion of essential and non-essential employees
  • Consideration of salary or wage rate reductions
  • Discussion of temporary deferral on rent payments with landlord
  • Reduction of variable overhead expenditures
• Determine the impact social distancing will have on production
• Communicate with the bank regularly to protect and manage credit
• Obtain funding and maximize benefit from COVID-19 related programs:
  • Paycheck Protection Program (PPP)
    • Loan Forgiveness Calculation and Documentation
  • Economic Injury Disaster Loan (EIDL)
  • SBA deferral of 7a and 504 loan payments for 6 months
  • Deferral of employer payroll taxes
• Look for ways to improve inventory turns
• Manage production schedules to eliminate costly production overtime
• Manage the liquidity impact on operations
• Review current business taxes to determine the need to make quarterly estimated tax payments or reduced estimated tax payments for the upcoming year
• Create a rolling 13-week cash flow forecast tied to receipts and disbursements and update it weekly.

We understand that the COVID-19 crisis has imposed significant challenges to all businesses. We encourage you to put a cash flow management plan in place to ensure your organization can weather this crisis and be well-positioned when the economy starts to rebound.

We put together some cash flow planning resources for healthcare organizations. Check those out here.

If you need assistance with any of the steps above, we have experienced professionals who can assist clients in managing their liquidity challenges. If you’d like to discuss your organization’s cash flow management, please contact your Blue & Co. advisor today.