Now more than ever, strategically and comprehensively managing your cash flow can keep your small business alive and help it grow again.
A recent report from LendingTree found that the Miami metro area ranked fifth in the nation for the highest number of small businesses with less than one month’s worth of cash reserves. The data shows that 35.7% of Miami’s businesses are expecting their reserves to last less than a month. What’s more, data from the Census Bureau’s most recent Small Business Pulse Survey found that just 21.5% in South Florida reported they have 3 months or more of cash on hand.
With no slowdown yet seen in the COVID-19 crisis and so many of South Florida’s small businesses in danger of closing their doors, it seems like it is a good time for another discussion about managing cash flow. But as Raju Mohandas, a certified business consultant for Florida SBDC at FIU, points out, it is always the right time to put cash flow management at the top of the priority list, even if your small business is doing OK.
You can google and find any number of tips about managing cash flow on the Internet; it’s not hard to find advice on “easy” ways to bring more cash in while stopping cash from going out. But simply pulling one or two of these levers and thinking that’s all you need to do is not going to get you there, says Mohandas, a cash flow specialist.
“There is also strategy change and pivots that needs to be considered in stretching/conserving or finding ‘cash’. One looks for it from sales, operations, overhead, review of cost structures and a more general review of customer retention cost, cost benefit reviews, new distribution channels, etc.,” Mohandas said.
BEEN THERE, DONE THAT
He should know. Mohandas been mentoring small businesses for more than a decade, first with SCORE and now with SBDC at FIU, the small business development center within the university’s College of Business. He has an MBA and has also been a turnaround specialist for many years. What’s more, he ran his own small business that nearly didn’t survive Hurricane Andrew. So he has been there, done that.
To effectively manage cash flow, you need to go line by line and dig deep in all the areas – sales, operations, accounts receivables, inventories, accounts payable, expenditures etc. It’s also an exercise that needs to be done regularly, not just in a crisis, Mohandas says.
With that in mind, GrowBiz reached out to Mohandas for more of his advice. We will also dive deeper into some of these topics in future weeks.
First off, look for ways to bring more sales into the door. “You have to look for new revenue streams. The new normal is forcing you to do that. And you have to see what you can automate, making it convenient for your client, and making upselling easier,” Mohandas said.
PIVOTS MAY BE NEEDED
In crises, sometimes it means pivoting to save the business in the short term. Mohandas knows all about that, too. He owned a screen printing and embroidery business in the Tamiami airport area and his company’s facilities were devastated during Hurricane Andrew. It would be months until he could move to a new location and set up again. So he told his employees: “hey, we are going to start doing other kinds of jobs, I will get the jobs, you guys can do it, and we can put food on the table. Guess what, we were able to keep going the next 3 or 4 months until we could move to a new location. Sometimes it is about surviving until you can get through the toughest spot.”
On the sales side, you need to seek sales that increase cash flow. Look at gross margin, you need to get more for every sale. “Use technology to find efficiencies – it’s been great advice for a long time, but guess what, now it is more important than ever,” he said.
What more can you do to retain a customer? Take the time to get to know them better. How can you help them? Can you up-sell them or create a new revenue stream based on their new needs?
In times like this, explore alliances, even with competitors. We’ve shared stories of restaurants that have shared kitchen staffs, and that sent their employees to work at grocers while they were closed. Mohandas points out that even the big players are doing this. Who would have thought that competitors JetBlue and American would partner on some routes, but they have. “You have to be very creative.”
TRIMMING EXPENSES, LINE BY LINE
Finding ways to trim the money going out in many cases comes down to negotiation.
Renegotiate rents and other contracts if you can. Some of Mohandas’ SBDC at FIU clients have worked deals for a lower rent for a limited period of time but also agreeing to a lease extension. Another client, negotiated a lower rent but also a percentage of sales when the business reaches a certain level of business.
Negotiation is about making the other side understand that if your business succeeds it’s a win-win because it also helps them. The landlord keeps a long-term business. The same goes for vendors. Some of Mohandas’ clients are cash flow positive again because they successfully renegotiated terms.
“Everything has become about being creative and how to save cash but they have had to negotiate like never before,” Mohandas said. “There is no rule book right now.”
Mohandas recalls those days when he owned his business following the hurricane. “I owed a lot to suppliers because of Andrew but I worked out a deal with them, and they all eventually received 100 percent on the dollar. And when I came out of the debt, my company was strong, which benefited them.”
HOW’S YOUR PROCESS PRODUCTIVITY?
Mohandas also advises to look closely at your process productivity. Can you cut it down? Can you outsource part of it to cut internal costs. We don’t want to talk about that – it’s a taboo topic to talk about laying off people – but it is a business reality, he said.
And as you go line by line, you have to ask yourself, what does each decision cost and the benefit that it will bring?
In future GrowBiz posts we will dig deeper into cash-flow strategies. “This is a big topic that I love and I am passionate about it – because I lived it,” Mohandas says. Stay tuned.
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Editor’s note: In addition to these stories, there are many recent posts about how local small businesses are pivoting. These include one manufacturer that is making face shields, another that ramped up home delivery bigtime, still another that added products to meet today’s pandemic needs, and many more. Check them out.