Financial survival has been top of mind for many business owners since the first lockdowns were declared in March of 2020. Almost 40% of Canadian entrepreneurs are now trying to balance rebuilding their financial health against business needs

How to manage your finances to ensure the continuity of your business?

Here are few cashflow strategies that will help your business survive during time of economic downturn or catastrophic events such as COVID-19.

1. Agility is key

Business owners who are agile can pivot their operations and optimize their sales reducing the impact of the economic slowdown.

2. Lower expenses

Lowering expenditures to reflect reduced revenue can help businesses break even and keep their doors open.

3. Operate safely

Your customers need to be protected and feel safe to do business with you. Your employees must have a safe work environment. Ensure your communications are clearly marked for customers and your employees are well trained.

4. Curtail unnecessary spending

Watching your margins during any reduced revenue period is critical. COVID-19 in a way, has been a live exercise in business survival. Stay on top of accounts receivables and manage your payables to the latest date possible. Negotiate longer payable terms where possible e.g. ask to move from 30 days to 60 days.

5. Plan ahead

OK, this one seems common sense although, when your busy fighting fires it’s easy to get caught up in the “right now.” Some of those fires are showing up because you didn’t plan far enough ahead. Get in front of your problems and forecast further out.

What’s Your Business Interruption Strategy?

Many years ago, we had a 120 seat cafe/restaurant with a liquor license that was extremely successful. Literally a line at the door. So busy in fact, I slept on a cot in the back (closed at 2 am and opened at 8 am) during our 1st year.

When the sun is shinning you’re not thinking about umbrellas!

~ David Aaron

It was August, our busiest month of the year and construction had began in the parking lot to remove an old building to make way for additional parking. The construction company accidentally cut the water main flooding the parking lot. The entire parking lot was closed off and torn up. They piled mounds of pavement, stone and dirt right in front of our business. You actually couldn’t see our business. Sales revenue in August was normally $80-90,000…we did $6,000!

The landlord provided a $1,700 credit towards our lease and do you think that made any difference? We never considered planning for such an event. We had 16 employees, perishable food inventories and just like that disaster!

Planning for the worst case scenario

1. Break-Even Analysis

Add up all your fixed expenses such are lease, salaries, communications, interest and principal payments on loans. Then, divide this by the margin you earn on each sale (usually a percentage).

If you think your business might not earn break-even levels, you may have to consider cutting your expenses to the strict bare minimum. Consider temporarily removing products/services which are unlikely to break-even during this period.

2. Do some “Spring Cleaning”

Time to sell anything you haven’t used a long time and will unlikely ever use it. Such things as, equipment & vehicles. Cash is king here! Examine where you can get short-term financing.

3. Renegotiate fixed costs

For our restaurant, we negotiated with the landlord to reduce the lease over a several months and increase the lease payment during our higher business volume. Examine if this is possible with your business. Heating & Air conditioning is one are to consider. Adjusting the temperature by 1-2 degrees over time reduce your energy bill. While it may be a little uncomfortable, the alternative is far worse.

4. Change Your Pricing

Modify your pricing on items with the highest margin to increase the margin. One example in our restaurant was, in the winter strawberries are very expensive comparative to the summer. We increased our price for a top selling menu item by a nominal amount and removed strawberries from the menu. Instant boom to our bottom line.

5. Flexible Working Arrangements

Can you work from home or move to a co-working space to transform fixed rental costs into variable costs. Can any employees work from home?

6. Pay attention to giving out credit

Scrutinize new clients on their credit worthiness. When sales volume is low you don’t want to take on a delinquent new client. Also keep a closer eye on customers who are falling behind with their bills. Ask for a partial payment to mitigate a larger delinquency – receiving some cash during these times is better than none at all.

7. Establish and maintain strong credit

“But I don’t need credit right now.” Establishing lines of credit is essential in business. Even General Electric ran out of credit during the 2008 financial crisis. Using credit during normal business cycles is good financial management. Having access to credit during economic contraction is critical to business sustainability.

8. Death by a thousand cuts

Pay attention to the small almost invisible expenses. They can add up to quite a bit:

• Subscription services for social media platforms. LinkedI n is $100 per month for Sales Navigator. Perhaps a pause on this and similar accounts is necessary
• Paid advertising – if you have modified your product/services discontinue ads which are promoting those items
• Data charges – If business volume is low do you need to have the highest data package?
• Infrastructure costs – During COVID-19 you’ve been paying for infrastructure to support a business at 80-110% volume when in fact you may have been at 20%. You need pivot quickly to reduce these costs.

Use these strategies to build up your credit and gain the trust of lenders

Your personal and business credit scores are important factors a banker will consider when you apply for a business loan.

While your business’s financial strength is important, a bank will also look at your personal credit score when deciding whether or not to give you a loan.

If you think your personal credit score could be a problem in obtaining a business loan, don’t despair. There are strategies you can use to improve your credit rating.

1. Pay your bills on time

Consistently paying your bills on time isn’t only a good way to avoid interest and penalties, it’s also the best way to build your credit history, improve your credit score and show your banker you are a reliable business partner.

Your payment history is the most important aspect of your credit score. Even a slight delay in your bill payment could have an impact.

2. Have the right credit mix

The credit rating bureaus look at what types of debt you have when determining your credit score. Having too many credit cards, for example, could negatively affect your score, especially if you are using one card to repay money you’ve borrowed on another.

Similarly, opening multiple credit accounts at the same time will have an impact on your credit score. The same goes for making too many credit inquiries with the credit bureaus.

To avoid negatively affecting your credit rating, make sure you only apply for the credit you need and believe you will be approved for. And don’t apply for multiple credit products at the same time.

3. Keep your credit utilization rate low

The amount of credit you use is considered a predictor of default risk and will have a direct impact on your credit score. In general, the rule on credit usage is that a low utilization is better. Less than 10% is preferred.

In general, the rule on credit usage is that a low utilization is better. Less than 10% is preferred. Always pay back credit cards and unsecured lines of credit as soon as possible.

4. Separate your business credit from your personal credit

Your business credit score is separate from your personal score and includes reports from firms that do business with your company, such as suppliers and financial institutions.

You should separate your business credit from your personal credit as much as possible. Use business loans, your business line of credit and business credit cards to finance investments, purchase supplies and top up working capital.

5. Check your credit report regularly

Credit reports aren’t perfect. Names may be misspelled, other people’s information can end up on your file and debt that you’ve paid can still be listed.

It is good practice to check your credit report regularly. This will ensure the report is up to date, that all the information is correct and that you have not been the victim of fraud.

Your personal credit report can be easily obtained from either of two service providers in Canada—Equifax Canada or TransUnion. Visit their websites to learn how. For your business’s credit bureau report, there are three options—Equifax Canada, TransUnion and Dun & Bradstreet. Because agencies don’t share information, it’s a good idea to review your credit history from all the credit agencies.

6. Avoid debt collection and bankruptcy

Leaving bills unpaid to the point where your debt is referred to collection agencies, your assets are seized or you have to file for bankruptcy will obviously hurt your credit score.

Always avoid getting into a situation where a creditor will go after your assets publicly. Collection and bankruptcy are very negative for your credit score. Avoiding that would be critical for having good creditworthiness.

7. Be patient

It’s difficult to estimate how long it can take before someone’s credit improves significantly. He advises entrepreneurs to start building their credit history early on.

Start with personal and business credit cards and keep utilization low. That will generate the type of history that will be good for both your personal and business credit scores.”