Managing Cash Flow In Uncertain Times Part 3: Accounts Payable

Managing Cash Flow In Uncertain Times Part 3: Accounts Payable

Managing Cash Flow in Uncertain Times: Part 3 – Accounts Payable

Are you asking how long you can sustain your business under current conditions? There’s no question that it’s uncertain when things will return to normal – or some new version of “normal”.  One of the biggest issues when it comes to sustainability is cash flow. This blog series outlines how to analyze and improve your business cash flow, even during uncertain times. In this third and final part, we focus on accounts payable for your business. 

Part 1: Cash Flow Analysis

Part 2: Accounts Receivable

Part 3: Accounts Payable

Evaluate & Prioritize Expenses

When your business is struggling, you will need to prioritize expenses and come up with a plan for paying them. If you can’t pay all of your bills, which ones should you pay first? The most important for many businesses are

  • Payroll as your employees are your #1 asset
  • Rent if you have a physical location (this might also include utilities)
  • Inventory for retail businesses

Determine if some of these expenses may be deferred. An office supply invoice being paid late may not incur a late fee or affect the status of the company. The consequences for failing to pay payroll or rent, however, would be more serious.

Ask Vendors for credit terms, discounts, and payment extensions

Call your most important vendors and see if some type of payment arrangement can be made. Times are tough for everyone, so some vendors may offer you a discount if you pay now, since they have their own bills to pay. Other vendors may allow you to make smaller payments over time to pay off a larger balance.

The key thing is to stay in touch with your vendors. If you are ignoring them, they will be less likely to work with you. Let them know your situation, and tell them your plan for when you might be able to make payments.

Evaluate other ways to reduce your cash outflow

  • Review recurring monthly charges that might not be needed – we all have subscriptions and software that we don’t really use anymore
  • Comparison shop vendors and service providers to find the best prices
  • Check your credit card rewards – if you have been using a credit card in your business, you might have built up rewards points that can be used to help pay off the card, or even get cash back
  • If you must get new equipment for your business, consider leasing rather than purchasing. 

Making Ends Meet 

If you can’t cover the essentials with cash on hand and you’re unable to defer payments, you may be considering a loan. Whether it’s a Paycheck Protection Program (PPP) loan during the COVID-19 pandemic or a regular SBA loan, a solid view of your financials helps prepare you to apply for a loan.

Having your financial statements in order makes the application process easier, shows the financial strength of your business and your ability to repay the loan, and may help secure a low loan rate.

The statements a bank will most likely look at for the previous 90 days include:

  • Balance Sheet
  • Profit & Loss Statement
  • Statement of Cash Flows

The Bottom Line

Managing cash flow can be a challenge in any economic climate, and especially so in uncertain times. However, with the right mix of financial insight, communication, creative problem solving and informed decision making, many businesses can survive and even thrive. 

If you are unsure of what to do in your business next, start with the numbers. Once you have a clear understanding of where you’re at, it’s easier to determine your next steps. For additional guidance, check out the Numberwise blog post on ‘Bookkeeping Basics for Small Business Owners’. If you’re ready for help with your bookkeeping, financial planning and more, check out the Numberwise ‘Get Started’ page to learn more. 

Check out our COVID-19 resource page for more blog posts, videos and helpful information for businesses during the Coronavirus pandemic.

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