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MANAGING SHORT TERM CASH FLOWS DURING COVID-19

Cash is always king. Cash is the lifeblood of any business and managing cash flows properly is essential. This is especially true since at the moment, many businesses are in survival mode during the COVID-19 pandemic. 

This guide will cover a practical example of managing your businesses short-term cash flows, so let’s begin! 

Introduction 

Cash flow forecasting is usually done on a monthly basis for new businesses during the first 12 months of operations, and then yearly. 

However, during the COVID-19 pandemic, or any crisis period where a business finds itself in a constantly changing situation, it should be done weekly. Our example today will focus on weekly cash flows. Outline at least two scenarios: pessimistic and conservative.

Step 1: Build a list of your product/service and prices

Construct a simple table with columns for “product”, “price”, and “price with discount”. The discount represents any additional incentive you offer your customers due to the crisis, in this case, the COVID-19 pandemic. Add an additional column for unit of measure as well. 

See the table below for an example of every step.

Step 2: Project number of items to be sold by week during the current situation 

Next, list the number of units to be sold per week for each product/service according to the example below.

This step is important, because it represents how much of each product you expect to sell in each coming week. It requires you to make an estimate. This can be difficult to quantify-even in the best of times. You could review your own sales in recent weeks, read industry reports, websites, or contact industry associations to get a sense for what numbers you could use in your estimate. 

Step 3: Project cash in-flow (sales) 

Multiply the units sold by their prices with discount to determine your cash in-flows, like the example below.

Step 4: Project cash out-flow (fixed expenses) 

List all your fixed expenses for each given week like the example. Once you see all your fixed expenses together in the table, you can begin identifying which of them can be reduced, eliminated, or deferred

These three types of adjustments represent your immediate action plan. Be sure to check our COVID-19 Kit to see if any government benefits apply to your business during the pandemic. These benefits can be a part of your action plan. 

Step 5: Project cash out-flow (variable expenses)

Repeat step 4 but this time, for variable expenses. You can calculate variable expenses as a percentage of your price. In this example, food ingredients and packaging equate to 30% (25% + 5%) of sales. 

Again, identify where you can reduce, eliminate, or defer any portion of your variable expenses. 

Step 6: Calculate the balance at the end of each period with carry-over 

Subtract all out-flows from all in-flows. It’s important to carry over your previous cash balance from before your projection started, and from week to week. The result is your weekly cash flow! 

Step 7: Make as many adjustments as needed to achieve a positive ending balance 

If your projected cash flows are negative for any week(s), continue making as many adjustments to your out-flows and in-flows as possible. 

Again, these adjustments are quantifying the efforts in your immediate action plan (out-flows), and promotion or selling strategy (in-flows). 

Conclusion 

This is a simple example of a cash flow model; your business is likely much more complex. However, these basic short-term steps can be applied to nearly any business. They are simple, yet effective in helping you visualize and get your cash flows under control in a pinch. 

It is important to note this model is only as accurate as your sales projections, so be sure to make your estimates as accurate as possible, and adjust them as you go along. 

Need more information or advice about your cash flows? One of our Fernandez Young team members can answer your questions. Contact us here.