Post Covid 19 – How to inject cash flow into your business
The COVID-19 pandemic is fast changing the way we live our lives and do business. This change might just become the new normal – one that is uncertain and still evolving. For proper context, many retailers were already facing cash flow challenges before the Covid-19 pandemic and the social distancing and lock-down came into our lives. Post Covid 19, we can expect to feel the economic ramifications of the coronavirus for months or even years to come.
Given that context, retailers need to adjust their operation for a prolonged economic downturn and severe disruption to their businesses. As is always the case when facing external shocks, retailers must look at key internal factors they can control in order to survive past the short term and thrive.
Cash flow is king
During an economic crisis, disciplined cash flow management takes on even more urgency and importance than usual. Cash flow forecasting is an important skill to master at this time. Start by mapping out estimates of the money coming into and going out of your business. Effective inventory management is also vital. As with financial management, regular forecasting is useful. This will equip you to make adjustments that help ensure you have more money coming into your bank account than going out.
Here are a few cash flow levers retailers can consider as they manage the impact of Covid-19 to survive and thrive.
- Discount underperforming stock
Non-essential retail will likely see a decline in demand, so businesses in this category are vulnerable to oversupply. Retailers’ main goal in the short term (4-6 weeks) is to make sure they aren’t sitting on cash held up in inventory or deadstock. Even well-run companies can have 20-30% of inventory as deadstock, so now is the time to address it.
- Use your inventory management and/or reporting system to perform an ABC inventory analysisto prioritize products by how much value they create for your business. A-grade items are the most valuable, B-grade items are the “middle of the road” products, and C-grade items are the low-value products that don’t individually contribute much value, but collectively account for the hundreds of small transactions.
- Reduce carrying costs by selling off C-grade products.Consider heavily discounting, bundling, or even selling these products to liquidation retailers. This might seem counter-intuitive to your business, but it will provide you with much-needed cash flow and leave room for stock that moves.
- Work with your suppliers, vendors and landlords to Extend payables
The other side of cash flow is reducing expenses. You should look at your liabilities, such as your accounts payable, to see where you can to ease the cash flow crunch. One way to hold onto working capital is to take longer to pay suppliers, vendors and landlords. Reach out to your vendors and see if you can extend your usual payment terms, or if your vendor can offer a temporary payment grace period. If you lease your business location, you may also want to reach out to your landlord to see if they are able to offer some sort of payment grace period or discount on rent.
To preserve the integrity (and longevity) of supplier relationships, we recommend retailers work with their suppliers as soon as possible to establish an agreement they both can live with in the short term.
- Promote gift cards
Gift cards provide retailers with an immediate infusion of cash and (in most cases) ensure that a customer will return to their business in the future. For businesses with especially thin margins, gift cards can help you stay afloat until the crisis passes.
To further incentivize customers, you can discount gift cards, or even collaborate with complementary local businesses to create co-marketing opportunities that can help you acquire new customers. Finally, to reduce the risk of human contact, you should consider a digital gift card program to include in your social media and email marketing campaigns.
- Renewed focus on online presence
An increasing focus on online presence, transactions, adaptation to technology, is one of the cards on the table for the retailers looking to a quick revival post Covid 19 pandemic. Retailers may do well to not only have a renewed interest in having an online presence for instance, it is actually in their best interest to embrace online presence as the new normal, and a fundamental factor in business continuity, cash flow injection and survival or revival post Covid 19.
- Stay in touch with your customers
If you have collected customer email addresses in the past, now is the time to use them. If you have figured out a way to offer your services virtually or via pickup/delivery, email your customers and contacts to promote your new offerings.
Additionally, if you have company social media channels, promote your new service offerings or gift cards to your followers. You should also continue posting regularly during this time, even if you’re closed, to stay top of mind with your customers. This can help you keep your customers engaged with your brand even though they can’t make visits to your physical business location as usual.
- Pause standing orders with suppliers
Depending on current demand patterns, and the type of business you run, you may want to slow purchases down to avoid being stuck with inventory you can’t move. If this applies to you, rethink standing orders with suppliers, and press pause on any auto-replenishing algorithms until you know more. This way, you can push back future payments. The sooner you can cancel or defer the order, the better for your supplier relationship.
- Cut shipping costs
Shipping costs can eat away at your margins, so if you’re looking to cut back, we recommend the following:
- Manually fulfill orders where possible.
- Skip the fancy packaging.You can get free packaging from all major couriers (Redstar Express, DHL Express, and UPS)
- Set up shipping arrangement with smaller courier companies near you. When customers are close to your business, you use such delivery option.
- Look out for financial assistance programs
Even if you are able to put some of the tips listed above into practice, you may likely still find it difficult to keep your cash flow healthy during post COVID-19 short run. You may therefore still need extra financial help. So, watch out for governmental institutions like the Central bank and other such initiatives and palliatives that may be created to ease the impact of Covid-19 on small businesses.
Post Covid 19 – How to inject cash flow into your business – What other cash flow measures are you currently deploying?