How to Conserve Cashflow During Times of Uncertainty

Collecting Receivables

  • Although it can be difficult to have these conversations during tough times, it’s very important to get in front of overdue clients and either follow up for payment in full or work out a payment plan. Risk of non-payment goes up with time and having solid and consistent collection procedures for overdue customers will give your company the best chance for collection. Don’t be afraid to get involved with client collections and definitely be aware of the current status for your Accounts Receivable Aging.

Deferring Payables

  • It is important to understand which bills you can extend out through communication. Primarily you are trying to avoid financial penalties for non-payment, so I would prioritize payment of credit cards (to avoid interest) and rent (to avoid lease mandated late fees) and communicate with contractors or suppliers about extended payment terms.
  • Speaking of Rent – I would definitely reach out to landlords about abating rent in the short term and tacking it on to the back end of the lease. Some will and some won’t, but you never know until you ask.

Cutting Expenses

  • Going through the P&L detail is always helpful in identifying certain spending that can be paused/eliminated.
  • Would specifically look at outsourced services (contractors), software subscriptions, workers compensation insurance (I think that can be adjusted based on lower headcount).
  • With the rise of SAAS and monthly subscription billing popularity, it’s a good time to look at what you are being billed for personally and whether that spend is necessary right now. Things like a gym membership, a car wash membership or a social club membership can all be evaluated. Most companies are getting in front of this issue with their clients and I would recommend that if you do charge clients a monthly fee, that you also get in front of it.

Payroll

  • I would advise owners to move to a distributions / annual payroll strategy for themselves. It will avoid paying in payroll taxes until end of year and is also a very immediate area to eliminate a significant amount of the total payroll expense.
  • Converting salary employees to hourly employees, then furloughing the hours so that employees can take advantage of U/I seems to be the consensus move for being able to keep employees in the loop (and keep their health insurance) while businesses ride out the pandemic.

Taxes

  • Estimated Taxes are based on income projections which can be materially impacted by Covid-19. So, I would consider recalculating that number.
  • 2019 Personal Tax Payment Deadline has been pushed to July 15th.

In all things, timely communication is key. Getting in front of these issues will allow for the greatest flexibility and understanding for business partners. Information is key, with the amount of downtime you may have house cleaning on the financial side of things is a very good use of time.

Please add any additional helpful comments or tips you have below. Many of you were around and survived 2008. This is a different situation, but the lessons learned then can serve us well today.

Scrappy Entrepreneur Financial Contributor Kirk Cole is Managing Partner at Simple Accounting Solutions and can be reached at: Kirk@Kirkcolecpa.com. His website is: https://kirkcolecpa.com/