How Can I Optimize Cash Flow in My Business?

Worldwide, it’s a scary time for businesses, and maintaining cash flow is on every executive’s mind. Luckily, there are a lot of things that you can be doing right now to weather this storm financially if you know what steps to take to optimize your cash.

Here are six steps to keep the money flowing.

Step 1: Start by addressing your working capital (payables, receivables and inventory).

• Get smart about accounts payables. Audit your payables, and make sure you are paying the correct amount, and taking advantage of any available discounts (particularly before they start to disappear). Know your upcoming costs and look into extending payment terms on existing accounts payable where appropriate.
• Be diligent with your receivables. Practice good accounts receivable management. Invoice promptly, invoice and collect cash up front wherever possible, and collect any outstanding AR.
• Know your inventory. Move to a weekly or even daily analysis of inventory so you know how much cash you can reasonably expect to come in the door.

Step 2: Reduce your costs wherever possible.

• Reduce variable costs. Implement hiring freezes, reduce contract labor and redistribute work to your permanent workforce. Freeze discretionary spending, such as entertainment or training. Encourage employees to take available leave to reduce liabilities on the balance sheet.
• Reduce fixed costs. Review your fixed costs and look for savings opportunities as the result of remote work. Remote work may allow for reduction in fixed costs for office space if virtual work environments show that you can operate well with less physical space. If you don’t have a lease renewal or option coming up, look at lowering other traditional fixed costs such as utilities if you have moved to remote work.
• Convert fixed costs to variable costs. If appropriate, consider selling assets and leasing them back to raise cash. Outsource processes and investigate use of third-party contracts for things currently done in-house with flexible terms and monthly costs, such as data-hosting and warehousing, among others. These functions can move back in-house when the storm passes.
• Delay capital investments where appropriate. Now is probably not the time for that build-out or technology overhaul. Get by with what you have for now and leave the pricey projects for stable times to come.

Step 3: Take advantage of government programs.

New landmark legislation has been passed (and there may be more to come), so make sure you don’t miss out on these huge opportunities to keep your business financially healthy.

• Pay your workforce. Know your options when it comes to assessing your workforce, but you might decide to hang onto one of your biggest assets—your talent—by avoiding layoffs. There are payroll tax credits in the Families First Coronavirus Response Act’s Emergency Paid Sick Leave provisions, as well as the newly expanded Family Medical Leave Act to help.
• Get federal funds through the CARES Act. The federal government has allocated more than $350 billion to SBA programs through the CARES Act and supplemented its SBA Disaster Relief Loans. Get the cash you need to stay afloat.
• Investigate R&D tax credits. If you’re developing or improving a product or process you may be entitled to significant credits for your qualified research expenses.
• Stay up to date. This information is changing quickly. Stay on top of the latest options to take advantage of newly available government funds, or those that you may not have considered traditionally for your type of business.

Step 4: Use financing interventions as a safety net.

Debt is often a necessary and healthy part of business, now more than ever. Here’s how to get smart about your debt.

• Review your existing debt. Look for more favorable debt repayment terms and refinance debt wherever you can at improved rates. Talk to your bank and get in front of any debt repayment problems.
• Leverage lines of credit. Reach out to your financing partners to determine whether your line of credit is still what you thought it was, whether it is sufficient to cover your worst-case scenario, and talk to your financing partners for other options if it’s not.
• Ask for help. If your regular financing partners can’t help you, LP can help leverage our relationships in this space for you.

Step 5: Consider your company’s retirement plan and look for money saving opportunities.

• Review 2020 contributions. Are retirement plan contributions set in stone for 2020, or can they be modified? Talk to your accountant and your plan advisor.
• Get creative with plan expenses. Plans can be a drain on cash in the form of both contributions and built-in plan expenses. Look at paying plan expenses out of the retirement plan instead of current operations if your plan allows. This will free up cash for now, but you should confirm that it is not prohibited by your current plan.

Step 6: Get creative with your banking.

There are money-saving banking strategies you may be able to implement today.

• Review your disbursement methods. Investigate using a controlled disbursement account if you don’t already do so. Arrange for electronic payments because they are cheaper and provide continuity even when operating remotely. Consider utilizing a single-use credit card to protect your company from the risks of virtual banking.
• Turn to plastic. Get the highest-limit credit card available to your business, lock it up and don’t use it unless you exhaust the other options here. Talk to your bank about the best option.
• Streamline cash accounts. Consider a cash consolidation service if you use a variety of banks for deposit accounts or centralizing your money with one bank to keep better track of your cash flow.
• Reduce banking expenses. Make sure you’re getting the lowest bank fees, foreign exchange and merchant fees. Only pay for the banking services that you need.