How to manage your business’ cash flow post-pandemic

The pandemic has affected almost all areas of our lives and for businesses one of biggest impacts has been financial. Business West’s most recent Quarterly Economic Survey found that 40% of the 550 respondents reported a higher level of debt than a year ago, whilst 43% had 6 months or less of cash reserves remaining. 

The use of overdrafts and credit cards is also high at 22% and 19% respectively, and the percentage of businesses borrowing money from family and friends is quite significant, at 11%.

Research from the British Chambers of Commerce shows over half of firms are looking to access finance over the next twelve months, but a quarter of respondents describe their current level of debt as either ’unmanageable’ or ‘high and manageable’.

A virtual round table event 'SME Cashflow Roadshow: managing post-pandemic debt, including the repayment of government lending schemes' is taking place on July 15th held by Business West in partnership with the British Chambers of Commerce, TSB and the All Party Parliamentary Group (APPG) for Fair Business Banking. This will explore the challenges of managing debt during the crisis and in a post pandemic world. Click here to register.

Meanwhile, you can visit Business West’s Finance Hub to find out more about the finance solutions available for your business.

So, how can businesses manage what they owe while continuing to grow over the next 12 months?

Reduce your costs as much as possible

The outbreak out the pandemic caused a myriad of cash flow problems for businesses triggered by a sharp and unexpected drop in revenue. Damaged supply chains meant goods or parts for products were not reaching businesses in time meaning for some firms it became impossible to produce enough to meet demand. 

To begin reducing your costs it’s a good idea to list all your fixed and variable costs. A fixed cost is a routine business expense such as rent or salaries that doesn’t fluctuate. A variable cost Is a business expense that rises and falls along with sales. For example, if you sell more of your product during summer, you’ll need to source more of the materials in the months leading up to this. 

Generally, its easier cut variable costs than fixed costs. You might want to think about whether you can find a cheaper way to ship your products, or whether you can temporarily cut your sales team’s commission. 

Now might also be a good time to research alternate financing. While using a loan might seem counterintuitive it could help get your business back on its feet and mean the difference between having to start from scratch or preserve the foundations of your business to survive the coming months. 

Jerry Riches, Associate Director at Associated Commercial Finance said:

“Many businesses have had to reach into their cash reserves to survive during COVID-19, indeed many have taken either Bounce Back or CBILS loans. Therefore, as business volumes increase, so does the amount of cash tied up in working capital, stock, work in progress and debtors. 

“It’s an unfortunate fact that businesses fail when they run out of cash, not because they’re making losses. It’s therefore essential for any business to understand and manage its cashflow.

“It’s also true that lenders will have a limit to which they are willing to be exposed to any particular businesses, so even if your bank is willing to lend, this will often be restricted according to their credit appetite. 

“As a broker working with over 50 lenders, I can engage more than one lender, therefore enabling an overall greater amount of credit to be provided.”

Focus on generating cash over profit 

Focusing on generating cash over profit requires creative thinking as well as a mental shift, but if your business is struggling to generate money in the short term its important to keep things moving.

If you run a B2C business, you might want to consider offering discounts to existing customers to incentivize purchase. It’s easier and less expensive to drive sales from existing or prior customers so, with the right pitch and messaging, this is a good way to pique their interest and generate cash. 

You may also want to look at adjusting your product or service to adapt to the current environment and generate more sales. If an eCommerce platform has been in your company pipeline for a while now, this may be the time to set this up. 

Another important way to generate cash is to chase late payments from your debtors. 

Angharad Poole, Customer Success Executive at ITsettled, a company that has developed a tech solution to help companies secure their loan repayments, said:

“We’re currently looking at a perfect storm within the UK economy - with risk factors such as increased insolvency, £50 billion owed to businesses at any one time, the VAT reverse charge, and many others. 

“Our business works threefold; we help our customers eliminate legacy invoices, then build new foundations by training and upskilling them, and then continuing to act as a virtual credit control team, offering our customers an interconnected view of their cashflow and credit control position. 

“It’s important to note that the late payment culture we have in the UK needs to change - and we’re helping our customers do that.”

Find out about the support available 

The government is currently offering a Recovery Loan Scheme which supports access to finance for UK businesses as they grow and recover from the pandemic. Find out more here. 

The Restart Grant scheme is also available to support businesses in the non-essential retail, hospitality, leisure, personal care, and accommodation sectors with a one-off grant, to help them reopen safely as COVID-19 restrictions lift. 

The government is also offering grants to self-employed businesses who have been impacted by COVID-19. You must provide evidence that you have suffered a significant reduction in trading profits due to reduced business activity between 1 February 2021 and 30 April 2021. Find out more here.