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Why cash flow remains king in a time of crisis

Alan O’Neill

Seven steps to help those concerned about a drop-off in business as the spread of Covid-19 gathers pace


Cash is king for every company. Stock photo

Cash is king for every company. Stock photo

Cash is king for every company. Stock photo

As each day changes the global landscape, one reality is certain. Business has fallen off a cliff for many firms.

It’s good to see the Government and banks stepping in to offer support. While we wait for those supports to kick in, please remember one thing. Your business is your business. Don’t rely on Big Brother for all the answers. You have to take control and act now to manage your cash flow.

Hopefully, this is a short-term crash. Richard Curran in this paper described the global crash in 2008 fundamentally as a top-down crisis that affected liquidity. This crash is different. While recession is inevitable as a consequence of what’s happening, economic experts advise that it is more likely to be for the short term.

Meanwhile, the unfortunate stories are endless. The hospitality sector in particular is very badly hit. With 240,000 engaged in servicing the domestic tourist market, this industry employs 11pc of the workforce in Ireland.

Noel Anderson is the owner of Lemon & Duke in Dublin city centre and The Bridge 1859 in Ballsbridge. Just like every other similar business, his telephones are ringing for cancellations only.

The Ireland-Italy match, the Schools Games and the St Patrick’s Day festival are all huge losses to him. As pubs close around the country, all turnover will completely disappear.

Anderson’s greatest concern is for his staff, as this crisis puts jobs in jeopardy. He is particularly concerned for those that are renting accommodation, as banks will be supportive of mortgage holders.

He told me that while drinks suppliers are being flexible, others are not.

I met with Rachel Naughton, the head of SME business at AIB. She described the mixed responses and some examples of how businesses are affected by this.

For example, some customers that have been approved already for loans are not drawing down. Others are panicking due to having already paid for stock that either has a short shelf life or will not sell for some time. But Naughton also assured me that pillar banks are concerned for the short and long-term sustainability of businesses in Ireland. They will be supportive. So if you’re under pressure, go and talk to your bank immediately. Speed, openness and dialogue are critical.

Here are some other tips that Naughton shared with me for those under cash flow pressure.

1 Check the reality of your cash flow for the near term

Download the free cash-flow template from business.aib.ie/cash-flow-planner. Fill in your numbers as shown. You can do this yourself; you don’t need an accountant. This spreadsheet automatically calculates your risks and your exposure. You might not like what it tells you, but you can’t avoid this reality so don’t bury your head in the sand.

2 Consider all costs

Go through all of your overheads with a fine-tooth comb. Prioritise them and check what you can defer. Talk to your creditors, who are obviously in the same boat as you. Some of those will be in a better position than others to support you, especially the bigger ones. Revenue is already being lenient and perhaps your county council will be flexible with your rates bill.

3 Speak to customers

It’s quite surprising how many small businesses are still very slow at getting their invoices out. Do that immediately and then assess each customer debt one by one. Some of them may have cash and with a good incentive/discount, they might pay you now.

4 Go to your bank

There are many things you might be able to do to alleviate your cash pressure. You might be able to negotiate a moratorium, which defers loan repayments for a period of time.

You might be able to switch to interest-only or get temporary working capital funding. Your bank will discuss options with you.

5 Explore alternatives for funding

Because of the challenges with Brexit, the Government got behind the business sector with new funding schemes.

Go to microfinanceireland.ie and you’ll see that it is offering Covid-19 business loans of up to €50,000. Enterprise Ireland is also very proactive and is offering supports. Check out enterprise-ireland.com.

6 Get creative with the ‘art of the possible’

After you’ve got visibility and a plan for your cash flow, your head will be clearer. Now get back into a more positive mindset and brainstorm some options. Anderson is considering engaging with Deliveroo to offer a take-home delivery service. One bricks-and-mortar retailer that I know does not have an e-commerce presence. She is partnering with an online store to clear spring/summer stock at a discount.

7 Plan for Recovery

I appreciate that this might be too early and too much for some, depending on the life cycle of your business. But your bank will ask you about this. So when you can get your head into it, think about what you will do to drive revenue when this is all over. Remember what Ryanair did after the 9/11 disaster when the world stopped flying? It went out with a massive seat sale to encourage people to start flying again. Remember ‘The Gathering’? This was an initiative designed to get the diaspora to have a big extended family party back on the Emerald Isle.

The Last Word

The pace at which this Gurtage (gargantuan and unprecedented reaction to a global event) crisis is unfolding is astounding.

More developments will undoubtedly occur after I have submitted this copy. But regardless of what happens in the next few days, these tips will still be highly relevant.

There is one common denominator in this for all of us: cash flow will be on all radars. Don’t ignore it. Do what you can to get cash now and worry about making a profit when the tide turns. And the tide will turn.

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