The 3 Cash Basics

To keep your business solvent through the COVID-19 pandemic, refocus on these cash basics:

• Now is better than later. Decreasing cash flow for many of your customers means you’ll likely have trouble collecting 100% of your accounts receivable in the short term. But don’t overlook clients whose cash flow or revenue has yet to be dramatically affected by the pandemic or who have a big enough emergency fund to pay most of their bills for several months.

  What to do now: Be compassionate, but don’t stop your A/R collection efforts. You need as much cash as possible now, not later. You likely have some customers who can still pay your invoices.

• More is better than less. It is important to build your cash reserves now more than ever. While difficult during lockdowns, think long-term to build up your cash. Review every asset on your balance sheet – accounts receivable, prepaid expenses, fixed assets, and inventory. Determine what it would take to convert each of them to cash.

  What to do now: Consider leveraging these assets with your bank as a line of credit. Also talk to your lenders about the need or option to postpone several months of loan payments.

• Don’t run out. According to a 2019 survey by The Service Corps of Retired Executives, 82% of small businesses that eventually fail do so because they run out of money. If things take a dramatic turn for the worse, this is the ultimate rule for your business: Don’t run out of cash. Forecast your business’s worst-case scenario and figure out how much cash you need to keep your doors open.

  What to do now: Prioritize your business’s expenses, starting with the first expenditure you can cut from your income statement to increase your cash position.

The 3 cash basics seem obvious, but they are difficult to put into practice. By keeping these ideas top of mind, you should be able to meet your goal: Have enough cash to keep your doors open and business solvent.

As always, we hope you find our tips and news for businesses valuable, and look forward to receiving your feedback. Companies focused on growth have sought the help of Insero & Co. for more than 40 years. During that time they have consistently experienced the peace of mind that comes from knowing their CPA firm takes the concept of integrity seriously. Should you have any questions, please contact us directly.