The world is now facing an unprecedented “Black Swan event” in the form of the COVID-19 pandemic, forcing people to adopt strict social distancing and enterprises to brace for an impending recession. Many small- and mid-sized businesses (SMBs) are already scrambling to implement means of survival.
Despite the uncertainty, you shouldn’t panic. There are different ways to manage the risks present in these conditions, but the first things you should do are to keep a level head and think of your current cash flow situation.
You’ll want to cut as much of your unnecessary spending as soon as you can while attempting to collect as much cash as possible. It may seem complex, but it can be done. Start out with the following and you should be on your way.
Revisit your variable costs
Variable costs are company expenses that change relative to production output. For example, a manufacturing business’s raw material costs change in proportion to their production output targets. The problem is that often, variable expenditures aren’t efficient, meaning many companies spend more on their variable costs than they would if their system were optimized.
Managing variable costs is an effective way to reduce cash outflows — in fact, many SMBs manage variable costs by turning them into fixed costs. For instance, businesses look to managed IT services to streamline IT costs while maintaining the same (or even higher) level of output.
More often than not, hiring a managed services provider (MSP) brings more value for your investments over an in-house IT team, because the former has the edge in terms of cost savings and ability to scale operations quickly. Most SMBs won’t have the resources to have their own full-fledged cybersecurity team on top of their existing IT workforce — partnering with an MSP often gives you that for a regular monthly fee that still costs less than running your own IT department.
Reassess your capital investment plans
The main goal of any for-profit organization is to earn enough to invest in ways that will help the company grow. However, in times of uncertainty, sinking resources on big investments may be a bad idea. This is because economic conditions may not be conducive to business growth. Furthermore, these kinds of expenditure have elevated risk levels, so the company may end up losing more than what it hopes to gain.
When facing economic turmoil, it’s important to have a good view of your business’s liquid resources, particularly its cash levels. Keep in mind that in economic downturns, credit lines may be difficult to come by; however, your organization will encounter less difficulty facing its financial commitments if you have enough cash on hand. Just make sure you have a clear view of your asset groups.
Having a reliable and powerful accounting system — such as Sage Intacct — is key to financial success through storms. The worst thing any business owner can do is to panic and pull out all their cash from under the company. While it’s important to stock up on cash during difficult times, you should take a rational approach and draw funds from asset groups that are expected to perform poorly or stay stagnant during the downturn. Having an accounting system with a 360-degree view of your financial standing will help you gain a good understanding of this, so you can draw up a smart financial strategy.
Focus on inventory management
If your business is facing an operational slowdown due to economic difficulty, you should take advantage of your free time to conduct a thorough inventory audit. Inventories tend to carry some risk that you should track closely, especially if your products are perishable or may incur some depreciation (or even damage) while in storage. If sales are set to slow down, knowing the present state of your inventories will help you make ample preparations, such as improved storage conditions, alternative distribution channels, and the like. This way, you can mitigate your losses.
Enterprise resource planning (ERP) software makes inventories a breeze, whether you face full operational loads or whether you’re conducting audits. For instance, Microsoft Dynamics 365 won’t just help you track your inventories, it’ll also let you map out your relationships with the relevant stakeholders for each item you track. You’ll also get robust insights and metrics that will help you make crucial decisions.
Try to collect on outstanding receivables
When the economy suffers, everyone suffers. So it may feel awkward to reach out to the people and businesses that owe you money to try and collect. But this piece of advice isn’t only practical; it can also be used to secure long-term commitments and further strengthen relationships.
Before the brunt of the downturn takes its hit, you should approach the people and businesses that still have outstanding receivables on their accounts. Talk to them about whether they’ll be able to pay you so you can continue serving them. Also, it’s a good idea to consider flexible payment options such as partial payments and renegotiated payment terms. Remember that receiving partial payments is better than receiving nothing. Furthermore, it’ll be a way for you to stand in solidarity with your suppliers through trying times — it could even lead to improved long-term company relations when the crisis is over.
Think beyond your four walls
Lastly, you should look into the cost and value benefits of external options such as managed services, cloud-based solutions, remote work arrangements, and the like. IT MSPs like WhiteOwl can even bundle all three into a comprehensive and budget-friendly package so you can focus on your core business.
These solutions are proving to be particularly important during the coronavirus pandemic, as they have allowed businesses to continue operating even with the workforce staying at home. With cloud computing and virtualization, your workers can securely access your servers and conduct normal operations from the safety of their homes. We also provide networking and communications infrastructure consultation and management services, so you can design a networking strategy that accommodates remote work setups for now but can easily transition to in-office or hybrid work arrangements in the future.
Ask us how we can help your business cope with economic uncertainty. We’ll provide powerful and affordable solutions that will streamline your costs without sacrificing computing power. Call us today.