Life can only be understood backwards, but it must be lived forwards - Anonymous
Nothing holds more true for the predicament global small businesses face at present. Government aid for COVID hit small businesses are changing fast. Amidst mounting fears of a second wave and how badly that may affect already tottering businesses, here are three points that may help you feel more in control.
1. Payment terms, discounts and pause options - when customers approach you wanting to cancel or freeze services, it’s always a great idea to understand the actual problem. Is it a temporary lack of confidence in the ability to pay OR is it more long term such as the business shutting down completely?
If you are in a good cash position; it’s worth offering a “pause” or long term payment options that might help tide over temporary difficulties. This would save you the client long-term as well as the added goodwill of stepping up during a crisis.
2. Short term loans and funding - there is still funding available; if you are bootstrapped but need a helping hand now is the time to look for funding. If you’re in need of financing chat with your inner circle to lay down basic rules.
In a market downturn; there are investors who’d look for a quick bargain. If you feel you’d need investment in the next 8-12 months, it’s better to start your quest today. If you’re pre-revenue COVID relief loans maybe hard to come by. Banks may still offer overdraft facilities but would have much higher interest rates. It's always better to approach the bank (especially the one you bank with regularly), when you are in a positive position to talk about overdraft options.
3. Assessing revenue risk - this is the time to assess your monthly recurring revenue with a firm hand. Build in a churn rate to your MRR to understand how much more sales could you potentially lose - month on month. These could be any clients where you have market knowledge of financial trouble or have consistently complained about your products - the idea is to look for tell-tale signs of trouble and make provisions for revenue losses stemming from that in your cash flow. When cash reserves dwindle, hard decisions are needed.Having time on your side might ease some of them.
A classic example is negotiating overdraft. If you have good cash reserves today but don't see that lasting, the best thing to do is to negotiate a facility with your bank today. Not when it's dire where you could be slapped with higher interest rates.
If you are undergoing financial stress and need to talk through cashflows, budgeting or risk assessments, please reach us via our Contact page.