How to manage cash flow for your business during economic uncertainty

Maintaining cash flow for your business is more important than ever during these challenging times. Our recent Agent Authority survey¹ found that small-business owners are concerned about the economy. The data reveals that only 41% of small-business owners believe the economy will improve in the next 12 months, and at least 53% of small-business owners are concerned about their business making it through the economic downturn.

Cash flow basics

During times of economic uncertainty, understanding and managing cash flow becomes increasingly important for small-business owners. It’s important to remember that:

1. Cash flow is the increase or decrease in the amount of money moving into and out of your business. Positive cash flow occurs when the amount of money coming into your business is more than the amount leaving your business, while negative cash flow occurs when the amount of money leaving your business is greater than the amount coming in.
2. A cash flow statement represents cash coming into and out of your business for a specified period and can help you determine your business’s ability to generate cash and pay expenses.
3. Entrepreneur magazine has a list of free or affordable cash flow tools and apps you can use to better understand how cash flows into and out of your business.

According to the Harvard Business Review, most small businesses are extremely cash-strapped due to the pandemic.²

Managing cash flow during times of uncertainty

Nationwide partner BlueVine, a financing and banking service for small-business owners, recommends the following strategies for managing cash flow: ^{3 4 5}

a. Request deposit, milestone or expedited customer payments

• Some small businesses offer products or services that require substantial cash or effort to be made before these goods or services can be delivered. Consider asking clients for a deposit or milestone payment. A milestone payment is a percent of the overall fee for a product or service and is paid during certain milestones throughout completion of the project.
• You can also ask your customers to pay sooner. Consider giving customers a discount for paying an invoice quickly, such as 10 days after a bill was sent.

b. Renegotiate agreements and cut expenses

• During times of economic uncertainty, suppliers may also be struggling, and it may be a good time to renegotiate contracts with vendors. Consider extending your contract with existing vendors for a lower cost or explore other vendor options.
• Review your business’s costs and explore ways to optimize processes around those costs. For example, you may be able to reduce credit card and banking fees by finding a fintech option that caters to your specific small business.
• You may also want to consider your personal expenses and how they impact your business. Out of all expense variables, small-business owners typically have the most control over their personal expenses. Cut back on eating out, delay a vacation or consider downsizing.

c. Consider a loan or business line of credit, and apply for grants

• A loan can help you cover everyday business expenses without disrupting cash flow. A business line of credit is like having a business credit card: It gives you access to cash when you need it. A loan or line of credit can be hard to quality for, or cost more, when you’re in dire need. BlueVine recommends securing a line of credit as soon as you can, even if you don’t use it right away. You can borrow against your line of credit when you’re strapped for cash.
• Federal, state and local agencies offer grant programs to small-business owners meeting certain criteria. Search for federal grants on grants.gov, or visit your state and local chamber of commerce or small-business development center website for information on grants. You can also search for corporate or private grants applicable to your small business.

d. Expand offerings and consider a pivot

• Your target market’s needs or wants may be evolving, especially as COVID-19 continues to create new ways of life. Look for ways to service your customer’s evolving needs using new technologies, or by expanding your product or service offerings.
• Economic uncertainty can be accompanied by market disruption. A pivot, or a change in what your business does to earn a profit, may make sense for your business.
• During times of uncertainty, remember to review and update your business continuity plan. This will help you prepare for and operate during times of disruption or disaster.

Maintain your focus

With the right resources and appropriate cash flow management, your small business can survive — and even grow — during an unexpected economic challenge.

[1] https://news.nationwide.com/how-independent-agents-are-helping-customers
[2] https://hbr.org/2020/04/a-way-forward-for-small-businesses
[3] https://www.bluevine.com/10-small-business-cash-flow-management-strategies-that-work
[4] https://www.bluevine.com/5-ways-small-business-owners-can-manage-seasonal-ebbs-flows
[5] https://www.forbes.com/sites/forbesfinancecouncil/2020/07/02/reopening-your-business-after-the-shutdown-strategies-for-shoring-up-financially/#43b9f1001479