When you need to seek financial support it pays to be prepared with all your key financial information.
If you’re facing a cash flow crisis, one possible solution is to approach your bank for help with business finance. As every business is unique and faces different circumstances, demonstrating careful financial management and documenting the actions you’ve already taken will help give better insights into how the bank, investors, or other organisations may be able to support your business.
There are five key pieces of information your financial advisers will likely want to see:
1. The future impact on cash flow
How will the crisis impact the week-to-week cash that flows in and out of your business? Sketching out a number of cash flow scenarios will help identify what could happen in the future to help with risk management and deciding what level of funding needs to be considered. You could create a number of cash flow examples where sales drop (or cease) over a period of time. For these scenarios you could consider:
- costs you will no longer have
- extra cuts you can make
- the impact on gross profit and margin
- the revenue you need to break even
- the length of time it takes to recover.
Each drop in sales will usually have a corresponding fall in variable costs (materials, cost of goods sold), but at some stage you may find it’s uneconomic to continue with certain products and services if the fixed costs are too high. In these cases, you may have to lower your overall cost base (possibly making staff redundant, move premises, or close less profitable product lines).
2. The state of your supply chain
It won’t only be your business that’s impacted by a crisis. Outline what’s happened to the key suppliers you rely on, and identify risks to your business if they were suddenly no longer able to deliver. This is especially critical if you have exclusive or hard to replace materials or products as part of your own delivery to customers.
You could develop an alternate supplier plan and consider reaching out to these businesses as back-up if your existing supplier can’t deliver.
3. If you have raised any extra capital
Before you borrow additional funds and add to any existing debt, you may be able to free up cash within your business to tide you over. There could be machinery that you no longer need, or vehicles you use on an infrequent basis, which could be sold and turned into cash. These could then be leased back when you need them.
Other ways to raise extra working capital may include:
- selling parts of the business
- liquidating excess inventory or raw materials
- re-investing your own capital
- refinancing against your existing assets
- finding external investors.
Look closely at the business assets on your balance sheet to see what you don’t need and consider what you can convert into cash without impacting your core business. The key to your small business accounting in a time of crisis is effective cash flow management.
4. Actions already taken
It’s useful to list what steps you’ve already taken to minimise any issues the current crisis has caused. This could include things such as applying for government support, negotiating and agreeing with suppliers to part-pay or defer costs to a later period (rent and interest are common examples), and amending your terms of trade to collect money faster.
You may also need to consider temporarily cutting the hours or salaries of your employees, although keep in mind that you will need to take into account NZ employment laws.
Ultimately there will be a number of key decisions to make to determine if your business can trade out of the current crisis.
5. Your future plans
You may be able to pivot your business to find new revenue streams through finding different customers or markets, developing new products or services, or finding new ways to sell to your customers. Outline what you aim to implement to bring your business back to positive cash flow and then profitability.
Think about how much additional risk and debt you feel comfortable taking on, as you will know the future potential of your business best. Do you cut your losses and exit or continue to work through the challenges rebuilding your business?
Regardless of what actions you have taken or will take, it’s helpful to document the changes, and reach out to your bank, investors, and other support organisations as early as you can to help find the right support for your business.