Right now, small businesses are scrambling through another lockdown, with cashflow issues at the top of the list for many.
Even with the government’s recent announcement of financial support for small businesses who have experienced a serious decline in sales, it’s a challenging time for small operators.
“I can’t imagine what people are going through right now, it must be hell for a lot of people,” hummgroup Head of Innovation Delivery, Alan Yeo, says.
“For businesses like physical stores, there’s no revenue coming in right now, but expenses continue on like payroll and rent. That’s a cashflow problem that COVID and lockdowns exacerbate.”
Even at the best of times, small businesses can struggle with cashflow management. Here are some helpful tips from hummpro on how small businesses can deal with their cashflow right now:
Understand cashflow versus profit
While your profit and loss statements might look stellar, do not assume that your business will be successful just because it makes profit. At the end of the day, your projected profit is not what will pay your staff or bills.
“Cashflow management is different to sales and revenue management. They’re closely correlated, but they’re not the same thing,” Yeo explains.
“There are some businesses that are good at making sales, but not good at collecting receipts. They’re profitable, but they’re failing because cash isn’t coming in and they are struggling.”
Stretch out your cash and maximise it
When it comes to paying your own suppliers, try to get terms to pay for those large expenses, Yeo advises.
“Stretch it out as much as you can. When you do have terms, there’s no point in paying invoices early. Be disciplined and only pay when you need to, but do some forecasting,” he says.
“You need to be aware of your spending patterns in the business, so you can predict your cash coming in and going out. You need a handle on it so you can do support planning and you’re not caught out.”
Collect invoices early
“Revenue’s about making sure you have your cashflow coming in. Pay late, collect early. Every business knows it. It’s simple in theory, but not easy in practice,” Yeo advises.
Don’t wait until the last minute to invoice your customers. Instead, generate them as soon as you can. If you can, collect your payment upfront or if it’s appropriate, pre-payments are even better so it gives your business some financial relief. Progressive invoicing may be another option, where you ask customers for a pre-paid deposit.
Experiencing a boost? Get ready
For some businesses, lockdown could be a time when they see a sudden surge in sales, like loungewear, exercise equipment and kids’ books and toys. However, if you’re not prepared for the increased demand, it can be a major challenge to manage.
“Let’s say you’re an online retailer and every time there’s a lockdown, the demand goes up so you might want to order more [product] quickly. It’s great if you can boost your inventory and increase your order volume,” Yeo says. “Some suppliers may require upfront payment, but you might struggle if you don’t have the cashflow to pay them.”
Sign up with hummpro for an instant cashflow boost
hummpro is an easy-to-use interest-free payment solution that comes with a digital Mastercard; so you can use it anywhere Mastercard is accepted. You purchase supplies you require immediately and have full optionality to stretch out your repayments whenever you need to.
You can do this anytime easily through the hummpro App. It’s a great tool to help business owners control their cashflow demands and you can apply instantly for up to $30,000. If you have business customers, they can also use hummpro to pay you, so you get paid upfront and they can manage their repayments flexibly through hummpro as well.