Keeping Cash Flow Constant Amidst the COVID-19 Crisis

The effect of the COVID-19 crisis on cash flow cannot be underestimated. Disruptions in operations, labour, and supply chain negatively impacted businesses, leading them to cashflow crunch. We cannot overemphasize that cashflow is the lifeblood of business. Without it, businesses cannot survive. 

Keeping cash flow constant

It has been more than three months since the lockdown and businesses are reopening. As much as everybody wants the economy to return to pre-COVID-19 normal, some businesses are in fact still struggling. Here’s what CFOs did to manage cash flow in the current environment. 

Borrow against R&D spend   

Rhys Godbee, CFO at Cohda Wireless,  told SmartCompany that borrowing against the company’s R&D spend creates a steady cash stream that they pay back with their tax refund.  

Cohda Wireless is in the investment stage. Its CFO acknowledged that because of this, they’ve had a cash burn. Mr Godbee explained that the company used the R&D finance to access their R&D tax incentive fund. The company is repaying it with refunds they are getting later this year.

Aside from R&D finance, there are also other forms of alternative financing that can boost cash flow. These include invoice finance or construction loan finance for those in the construction industry. Mr Godbee recommends engaging with your financing partners to determine which financing is best suited for your business. Another tip is to ensure your lines of credit remain available for consistent cash flow.

Tap into stimulus packages  

The Australian government rolled out stimulus packages to help small businesses. This is another way to keep your cash flow positive even after the lockdown. According to SmartCompany, if your business has a turnover of less than $50 million and employs staff, you may be eligible for tax-free payments via the government’s $6.7 billion cash flow assistance package.  

Mr Godbee says the JobKeeper scheme is also worth applying for so you can keep staff on.  He also noted that they are getting the government’s boost in cash flow for employers, based on the pay-as-you-go (PAYG) tax. It was $50,000 in April and it’s another $50,000 across all months from June to September, SmartCompany said.  

Apply for grants  

Amit Shah, Virtual CFO of The Startup Shop, shared that, in addition to the federal government stimulus package, there are range of state-based grants that can bolster cash flow.

Mr Shah warns that the state-based grants are not as much as the federal government grants but are processed faster. He suggests checking the eligibility for grants and pointed out that the Cities of Melbourne and Sydney also provide financial support packages for eligible small businesses.

“People are seeing money in their account within seven to 10 days, which is an incredible turnaround for $10,000,” says Shah.   

Review supply chain  

Negotiating payment terms with your suppliers can also help to keep your cash flowing. When China imposed lockdown earlier this year and the world followed suit, supply chains were disrupted. This time, it would be a good idea to review your own supply chain and how this was affected by the pandemic. 

Even within Australia, the movement of goods was disrupted. If you are selling products outside of your territory’s borders, negotiate a letter of credit from a bank of good standing so that there is a form of guaranty that your buyer can pay. The letter of credit is not only a source of payment. It can also be used to secure inventory financing while goods are in transit. What is important to remember here are the financial risks of your trading partners, customers, and suppliers. 

Mr Shah shared that people are very flexible right now in terms of discounts as they want to keep customers over the longer term. 

“We’ve had people get deferrals from utilities as well as reductions on software products and on general subscriptions. Have a conversation with your suppliers. Think about what you need and negotiate the costs,” Mr Shah told SmartCompany.    

Cut unnecessary costs 

A primary concern of businesses nowadays is taking care of employees. During the early days of the lockdown, Slater Byrne discussed ways on how to cut business costs but not labour.

Mr Shah recommends reviewing software licenses and office equipment. He adds that you can sell this equipment if they are not needed in your operation.

“It’s an early spring clean to get some money in the door.”  

Create a cash flow forecast  

In addition to the abovementioned tips, Slater Byrne suggests making a cash flow forecast for you to have a good grasp of your current and future cash flow position. We offer a free assessment of your business’s cash flow and provide the best strategy to collect your debts quickly with minimal costs to you.

Photo by Annie Spratt on Unsplash

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