The COVID-19 pandemic that has descended on the entire world has shed a bright light on the need for paying attention to the financial side of a business. Those businesses that had a reserve established to cover operating expenses have been better equipped to handle the unexpected closures or severely reduced customer traffic through their business. While paying close attention to the business’ financial picture is always important, this pandemic has highlighted this necessity. Understanding where the business stands at present lends to better decisions about where to go in the future or where to make quick decisions to survive the unexpected.
Cash Flow Management
Cash flow management can be challenging during the best of times — especially for highly seasonal businesses — and many business owners don’t understand the difference between profits and cash flow. Cash flow is managed on the Balance Sheet, not the Profit & Loss (P&L) statement which we are generally more familiar with. Cash can be tied up in things that don’t show up on a P&L statement. For instance, cash can be buried in accounts receivable, inventory, purchase of fixed assets, or loan principal payments to name a few of the most likely culprits. Owner draws also do not show up on the P&L but pull cash out of the business. While both profit and cash flow are important over the long term, improper cash flow management will likely cause problems sooner.
There is an old adage that a business should strive to have three to six months of cash in reserve for the unexpected or for investment if an opportunity should arise on short notice. While that sounds good, I find that rarely are people able to accomplish it. However, those that did sacrifice some things initially in order to build that reserve found themselves in a much better position to weather the unexpected results of the current pandemic, closures, and customer fear of being out and about. Being in business carries some inherent risk, but minimizing that potential exposure can help you sleep better at night.
Help is Available
To further assist Wyoming small businesses, the Wyoming Small Business Development Center (SBDC) Network is putting together a number of training opportunities to help you cope with the current scenario, plan your future business model, and be better prepared for whatever challenge comes next. This will include financial management strategies to help you in the post-COVID-19 world. Visit WyomingSBDC.org to see the upcoming list of opportunities we are offering. Of course, we are also available to visit one-on-one to help you with your specific questions and strategy. All Wyoming SBDC Network services are offered confidentially and at no cost to Wyoming entrepreneurs.