We've had new lockdown and tier restrictions, which means managing your cashflow during lockdown is blooming important.   The financial support measures, such as the new Job Support Scheme, Job retention bonus, all needs to be factored in.

If you don’t manage your cash flow during the lock down, or at any anytime, your business will not survive.

Firstly, try not to panic.  A cash flow can give you peace of mind, it will help you with options, and you will make better decisions.

Get started

Be realistic, a rough draft is better than nothing.  This is not about predicting the future, your future cash story reflects your future business story

Your cashflow 

To help with managing your cashflow during lockdown you need to get your business story sorted,  Your cash numbers follow your view, based on what you know, what you think you know and what you don’t know about your business.

Build your cash flow forecast as though it was your business weather map. View your cash future through the prism of a changing and volatile weather system.  This will be a force ten hurricane, heavy downpour, occasional shower, or permanent sunshine.

Business activity during lockdown

Managing your cashflow during lockdown means that firstly, start with what you know, that is your customers and your cost commitments.

Begin that process by looking at and thinking of your business in terms of what it does, the activity. You can then match your business activity with your costs.

For example:

  • Hospitality sector, customers served; meals prepared
  • Retailing, orders placed; number of items made
  • Service based, client numbers, workshops delivered

Business implications

Business activity may not stop completely.  There may still be some customers that are still buying what you sell, some suppliers still selling what you need.

Look at your customer base, what is still pretty certain, offline, and online, when will it happen, and how much money will come in.

Cost behaviour

Cost behaviour is how your costs react and change based on your business activity.

The power of this insight and knowledge is numbers gold.

Two of the main cost categories are:

  • Fixed costs
  • Variable costs

Fixed costs

Fixed costs are those that stay the same, whatever the level of your business activity.

These costs stay the same if you don’t serve any meals, have no customers, or make no products.

For example, fixed costs would be

  • Wages and salaries
  • Insurance
  • Rent

Variable costs

Variable costs don’t stay static and will increase or decrease, based on your business activity.

For example, a restaurant not serving meals means no food or drink purchases, lower footfall for retailer means less inventory being bought.  Variable costs would be:

  • Materials
  • Inventory
  • Overtime

What's next?

Look at your customer base, what do you think your current customers will buy from you, does that depend on what is happening to their businesses.

What you don’t know can be made more certain by talking to customers and suppliers., dialogue can’t hurt.

Are there potential customers in the pipeline, are there warm leads that will become active? What might that look like in terms of money coming in, how much and when.

Customers in the ‘what you think you know’ category, will have costs. More customers = more variable costs for your business, but no impact on your fixed costs.

What we don't know

There’s a lot we don’t know that we don’t have a clue over.

Don’t dwell on the stuff you don’t know, use that maybe in shaping your approach to ‘what you think you know, but don’t dwell on what you don’t know.

How to manage your cashflow

Managing your cashflow during lock down ultimately means, showing month by month, weekly if more suitable:

  • WHEN cash comes in
  • WHEN cash goes out
  • Surpluses or shortfalls of cash

Gather together, ‘what you know’ and ‘what you think you know’. You want this measured in cash terms, typically what comes in and out of your bank account.

Ideally you are doing the number heavy lifting using tools like spreadsheets to do the number heavy lifting work, save the brain space for the thinking about your business.

What should the layout of your future cash flow look like.  Here's a summary, yours will show more detail, but you get the picture

 Oct-2020Nov-2020Dec-2020
£££
Cash in (In)20,00010,00010,000
Cash out (Out)18,00014,00014,000
In minus Out2,000-4,000-4,000
Cash at start of month1,0003,000-1,000
Cash at end of month 3,000-1,000-5,000

Once you know what the next few months looks like you can then make some informed and decisions.

Your decisions and options.  For example, different ways to get more cash in, tighter credit control, delaying payments, eliminating unnecessary costs, overdrafts, access to other funding.

Be sensible, careful and think through the consequence to your business from your decisions. If you are going to delay paying suppliers then talk to them, and don’t upset them; where you are going to cut costs, does this affect your ability to trade in the future, short term pain relief may mean long term anguish.

It is vital to know who owes you money, when the customer should be paying and when it is overdue. Lastly, monitor your cash flow, and update on a regular basis.

Conclusion

Managing your cashflow during lockdown is essential.  Your numbers will always be Numbers are your best business friend; they won’t lie to you. You need your friends in bad times, as well as the good

Register for our free webinar on Managing your Business Cash Flow.  Download our free guide on managing your cashflow.  Get in touch with us to find out more and how we can help.  For more business and finance , news, advice and tips, don’t forget to watch our weekly broadcasts, listen to our weekly podcast I Hate Numbers.

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