Keeping a business in the black and with a healthy amount of liquid assets can be difficult at the best of times. A small business will often operate on tight margins and if the cash stops flowing in it can disrupt operations, and in the worst-case scenario stop production completely.
Many industries have suffered since coronavirus started to spread across the world, and the UK was hit particularly hard. Businesses have shut down and people have been put out of work. Unemployment hit 5% at the end of 2020 and businesses stopped recruiting as work and money started to dry up.
If you are running a small business then you will need to know how to keep the cash flowing during this trying time. Obviously, making sales are a priority, but there are other options and methods for keeping your business in the black.
How Do you Keep Your Business in a Healthy Position?
The definition of liquidity in business refers to how easy it is for that company to meet its short-term obligations. This means having assets that can be used for payment, ie. cash, stocks, bonds, and shares.
To stay in a healthy position you will need to be able to have a flow of cash or have liquid assets at hand to pay bills, salaries, and other general costs. This can be done through sales, collection of outstanding debts, financing, or other methods.
Rethink Your Premises and Use Remote Workers
During the pandemic, more people than ever started to work from home. Many companies have found that this is an effective way to work and it allows them to retain smaller premises.
Some of the benefits of asking staff to work this way are that they have more time for themselves, they do not need to commute, they save money on travel, it’s better for the environment, and it is good for the employer too.
If you were in a position to ask your staff to work from home then you could sell or rent your office space. If you are already renting then you can use smaller premises. This is a trend being seen in New York, and many firms in London plan to turn office space into homes as their employees now work remotely.
Selling on Your Debt
This is a more drastic measure to raise cash and really it should only be done as a last resort. If your company has accumulated a lot of client debt and you are unable to collect it then you could sell it on.
The benefits of doing this are that you will no longer have to worry about debtor management and you will receive some cash for the debt. The disadvantages of using this way to clear debts are that you will certainly end any relationship you have with your client and you will receive pennies on the pound for the outstanding amount.
A much better way to handle debt is to use proper debtor and credit management.
Perform Good Credit Management in Your Business
As you know, poor liquidity can be harmful to your business, and not managing credit could bring your business to its knees. The Bank of England does not see a wave of Covid bankruptcies this year, however, a number of companies have already fallen and more will follow.
To avoid the same fate you need to look at how you manage client credit and debts. If you use cash collection software you can automate many areas that take up your time and that you perhaps ignore. It is easy to forget to chase up an overdue payment or to send out an invoice late.
Using debtor management software you can be in regular communication with your clients and automatically remind them about payments. The system will link to your accounting software too so it will save your team hours of work and speed up payments.
Getting your debtors to make payments on time is a key way for your business’s cash to keep flowing and cash collection software will make it easier for them to do so..
Selling off Hard Assets
Hard assets are the opposite of liquid ones, and less useful for quick cash injections as they normally take time to sell or convert. The biggest asset you will have is likely to be your property if you own your business premises.
Selling your property might make sense under a couple of circumstances. If you need a cash boost to improve your liquidity and you can find an investor who will rent you the same building back, it might work for you.
Alternatively, you could rent or sell part of your premises, especially if you have decided to use remote working in your business.
Make it Easier for Your Clients to Pay
Sometimes you might find that you are getting late payments because your system is awkward. The more options you give your debtor, the more likely it is they will respond on time.
If you have an online payment platform for clients then you can make it easy for them to manage their accounts. Offering a variety of payment options too will help to keep the cash coming in.
If you need a short-term cash injection then invoice financing may be a good option. This is where you can receive a loan based on the value of your outstanding invoices. The lender will assess your invoices and make a decision to lend you cash based on the likelihood that you will be able to collect from your debtors.
Like any loan, the amount you borrow will be subject to interest and you will have to pay it back regardless of whether your clients pay their invoices or not.
This way of financing can be very beneficial to small businesses that need a short-term loan to bridge the gap between cash going out and their invoices being paid. They can be easy to arrange also. Some companies such as Payt build invoice financing into their debtor management software, so you can find a lender quickly and easily.
Restructure How Your Business Operates
Sometimes the way to bring more money into your operation is to change the way things work. If you are struggling to convert sales then try other methods such as renting or leasing.
Because of how the pandemic has affected employment and finances, it may be that your consumers are wary of making any big purchases. Perhaps you can offer different payment options or even leasing.
Allowing your customer’s payments to be spread over 3 or 4 months may increase sales, or alternatively, if your business is suited, offer rental options. By renting out your equipment you can bring in regular monthly payments and once the lease is up you can sell the item for a reduced price.
Keeping your business alive requires cash. It is as simple as that. If there is less going into your bank account than you are spending then it won’t be long until your business is floundering.
There are many methods for either improving cash flow or for putting in a big amount at once, but the best way to keep afloat is to use proper debt management. Keeping a grasp on your client’s debts and communicating with them through automated systems can make sure your business stays alive.