Ep2 Focus on the Essentials in Cash Flow and Liquidity: Recap and Highlights

May 01, 2020

Do you know how your business looks from 30,000 feet above? Do you know how long your company can survive with zero or minimal income in the current situation? Do you know the proper response when your bank asks about the Acid Test, DSO and DPO, in the process of applying for a loan?

If you find any of the above questions difficult to answer, then Episode 2 of our webinar series Coping with COVID-19: Managing Cash Flow and Liquidity, is a must watch. Here are some key points and takeaways, shared by our Ye! Community coach, Riccardo Cairo, on cash flow management in challenging times.

What is cash flow/liquidity? The terms cash and liquidity are interchangeable in business management. Cash, means currency and currency equivalents that can be assessed immediately or in the near future, and can be used to purchase goods or services. You need cash to pay invoices, suppliers, and producers. Operating Cash Flow is generated by the production and sale of goods and services. Ensuring you can generate consistent operational cash flow is essential to building a winning strategy for a small business in the long term.  

Why managing cash flow matters? Companies often go bankrupt due to an unbalance between cash inflows and cash outflows. Your past and future ability to generate sufficient cash flow is one of the main indicators banks analyze to evaluate whether or not to lend.

In the face of all these changes and the new environment, predicating and assessing your cash flow position is crucial to the survival and thrival of your business! (For those of you don't understand the word thrival, check out our Ep1 recap here) The current pandemic has triggered some permanent changes in customer behavior, as well as raised customers’ expectations in terms of the buying experience. For example, we have seen a growing number of contact-less deliveries, and people are working from home with social distancing required. Managing your cash flow to handle these fluctuations and operations shifts is critical.

How to manage cash flows? Depending on your business sector, financial context and country, some practical things to consider when managing cash flows are: a. Ask for a deposit from your clients upfront; b. Bill more frequently to shorten the cycle of cash flow; c. Contact and collect on past due invoices, i.e. through a phone call or email to your clients. In addition, if you need to collect the cash in a relatively short period of time, a standard practice such as Factoring can be helpful. Factoring is when a third party company purchases invoices at a discounted rate. These are usually specialized companies or banks. Read more about factoring here.  

Main takeaways on managing cash flows:

  • Rethink your business on a different scale. It is time to conserve and focus on your business' core competency. Scale down where possible.
  • Keep communication strong. Continue communicating regularly with your customers and suppliers, while also investing in your key personnel.
  • Cash and liquidity are key to make viable changes in your business. So make smart choices in development that are in line with your operational cash flow.
  • Do a self-assessment exercise and get to know your cash flow position today!

Are you feeling more confident in managing your cash flow now? If you want to learn more in detail and get in touch with our expert and other entrepreneurs, check out the recording of Ep2 below. You can also review Riccardo's presentation anytime you like here to keep his top tips fresh in your mind!

The Ep3 on leadership in crisis is going live on 19 May, click for Registration

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