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Surviving Crisis as an SMB – 5 Actions to Protect Cash Flow

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David Meyers March 27th, 2020

For small and medium-sized businesses (SMBs) wrestling with the COVID-19 crisis, there is an elephant in the room: cash flow. Cash is the lifeblood of any business and right now, most SMBs are bleeding.

The Canada Revenue Agency defines small businesses as those with fewer than 100 employees, and a medium business as one with fewer than 500 employees. Similarly, in the US, SMBs are defined as those with fewer than 500 employees. Here in Canada, SMBs contribute almost a third of Canada’s roughly $1.7 trillion GDP and employ 7 of every 10 people in the private labour force. The entrepreneurial energy and output of SMBs are the energy Canada runs on, and when you hurt, we all hurt. When you thrive, we all thrive. And as our CEO, Derin Hildebrandt, is fond of saying at the end of every meeting and call – I’m here to help.

Before we talk about the specific actions we can take to shore up and protect cash flow, how bad is the problem? Well, a recent JP Morgan Chase study of 600,000 SMBs concluded that most only have sufficient cash to support 27 days of outflows. From zero sales to insolvency inside of a month. Even the leaders of that group – folks like you who seek out resources to survive and thrive in times of crisis – have two months of cash reserves.

It’s not all doom and gloom for a few reasons:

  • Almost no one’s revenues have dropped to zero.

  • This too shall pass. The economy will come roaring back, and I will prove it to you with specific examples in a future article (subscribe to our blog at the top of the page so you don't miss out).

  • There are specific strategies leaders and owners of SMBs can act on NOW to manage cash flow.

  • Some of the most iconic companies in the world were forged in times of crisis.

Watch Now: 7 Ways to Optimize Cash Flow in a Downturn

As a leader or owner of an SMB, what actions can I take now?

1. Take advantage of government programs available to you.

Do it NOW. These programs are changing rapidly, and the best ones will be heavily leveraged, which will increase qualification levels and barriers to entry. So start now. If your business is in Canada, contact me for some ideas on programs to leverage in your jurisdiction.

2. Negotiate with your suppliers.

There are strategic ways to slow-pay your suppliers that will still allow you to sleep at night. I’ve spoken with government officials who are responding with incentives such as the property tax allowances in Alberta that they suggest be passed on to commercial tenants. If you know what incentives are available to your suppliers, you are in a better negotiating position. Good negotiating levels the playing field and can stretch many of your payables to beyond the other side of this crisis. Long-term relationships matter here, so communicate with suppliers to negotiate terms that you both can live with.

“In business as in life, you don’t get what you deserve, you get what you negotiate.” - Chester Karass

3. Collect your receivables.

At ProjectLine, we specialize in helping SMBs automate and optimize critical business processes, like speeding up invoice-to-cash, using ERP software. In the current COVID-19 crisis, the strongest companies are shifting attention from the Income Statement to the Balance Sheet. Cash is king. Collect your receivables even if it means considering a discount for full payment.

4. Protect your best people while managing cash.

SMB owners will instinctively pivot their attention to revenue-generating roles in the short term. Great people who know your business can be temporarily redeployed to revenue-generating activities like maximizing new business, bringing in receivables and ensuring customer satisfaction. If you have contract workers, end the contracts and redistribute critical work to the full-timers that you will rely on when the crisis eases. You likely have “use it or lose it” vacation policies, and some of your best people will have unused days. Enforce the policy to reduce liabilities and delay or prevent layoffs.

5. Get tough on your inventory.

If you need buffer inventory to support sales in the short term, now is an excellent time to be negotiating discounts on purchases. In our business, I have found suppliers to be very amenable to offer discounts to make transactions in this challenging climate. At the same time, reduce finished goods inventory by  implementing demand planning and available-to-promise policies. We can help with that.

We can’t do much about the duration of the COVID-19 crisis, but we absolutely can take action to ensure that our businesses not only survive but are positioned to take advantage of the inevitable resurgence that is coming. Our team at ProjectLine is passionate about helping SMBs grow and thrive. If you found this helpful, subscribe to our blog at the top of this page for more content on best practices for work-at-home, growing your business without growing your payroll, and much more.

[Video] 7 Ways to Optimize Cash Flow in a Downturn

Find more content on managing through the COVID-19 crisis in our SMB Survival Kit: Leading Through Crisis.

March 27th 2020
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