As we conclude our three-part series on managing cash flow during COVID-19, we highlight five final topics that your business needs to be focusing on during these unprecedented times. Previously we delved into keeping your financing viable, revisiting your variable costs, focusing on inventory management and managing your payables and receivables. This final post examines improving your auditing, converting to variable costs and considering non-traditional revenue streams.
Refining your auditing practices
Now, more than ever, it is smart to ensure that your company is paying the correct amount for goods and services and collecting the right amount. Performing an audit now is a smart move. You will want to check that you aren’t overpaying, especially in terms of taxes and duties. If your cash flow can manage it, take advantage of potential discounts that your suppliers are offering. On the receivables side, if you have earned discounts that you haven’t received, it’s time to pursue those. Once you have completed a thorough review, consider what changes you can make long-term to better manage your processes.
Understanding insurance policies
What coverage does your insurance offer for losses resulting from disruptions to your customers or suppliers? If you don’t already know the answer, investigate what all your policy covers. Many insurers changed how they handled issues connected to epidemics and pandemics after the SARS outbreak from 2002 to 2004. Examine your policy to see what it does and does not cover.
Thinking about non-traditional revenue
As revenue streams are impacted, it may be time for your company to take a look at new or different options. Can the assets you have be used in a different way to produce revenue? Can you shift your primary market? Spend some time considering what alternate revenue streams are available to you that can temporarily, or even permanently, relieve some of the pressure.
Changing to variable costs
In uncertain economic times, it’s wise to shift any fixed costs for your company to variable ones if at all possible. And if ever there were uncertain economic times, the current moment fits the bill. Some of these solutions may not impact your bottom line immediately, but they can prove beneficial in the long-term. Areas to consider include contract manufacturing, selling assets and leasing them back, and transportation fleet leasing, depending on the nature of your business.
Considering your entire supply chain
Finally, take a holistic look at your company and its entire ecosystem. While your first instinct may be to ramp up inventory, that won’t accomplish much if your supplier can’t provide the materials or your customers aren’t buying. Think about the impact of your actions before setting a plan in motion. As discussed in our second post, things like delaying payables can cause issues for your suppliers that ultimately harm you in the long run. Identify all potential issues resulting from your actions and determine which could become problems that impact your business’s viability.
We hope this information has given you some food for thought on how to weather the recent turn of events. If you have been lucky and your business’s cash flow hasn’t been impacted by COVID-19, the current economic situation can still serve as a wake-up call to refocus your management team on how prepared your company is to handle any future risks as they arise.