November 03, 2020 I Ask Alan I by Alan Friedman

Cash Flow During COVID-19

Cash is the oxygen of every business – without cash, a business ceases to exist. And there are things you can do to manage, and maybe even improve, cash flow during these turbulent times. Fun, no. Rewarding, yes. So here’s a few suggestions that we know can work wonders in improving your store‘s cash flow:

Don’t Ignore Your General Ledger and Financial Statements Your company’s general ledger is a diary of all of your business transactions. By keeping this diary accurate, reconciled and up to date, you can easily extract, via an accounting software solution, two financial reports that will tell you everything about the health of your business — a balance sheet and an income statement. Are you making money? Are you sufficiently liquid or heading for cash-flow problems? What business segments are profitable? Will you make it to the other side of this pandemic if it goes on for another year or two? All of these questions can be answered by paying attention to your general ledger and generating financial statements not more than 15 days after each month ends.

There are things you can do to manage and even improve cash flow during turbulent times.

Forecast and Budget By forecasting where you believe your company is now headed or, better yet, where you’d like to now take your company, you have dramatically improved your chances of getting there. You wouldn’t build a house without a blueprint, so why would you run a business without a forecast and related budget? Whether you do it by utilizing the budgeting functionality built into nearly every accounting software package or by simply using an Excel spreadsheet, just do it. Forecast your revenues and budget-related expenses so you can plan to achieve profitability and make alterations along the way based on actual results achieved and unanticipated surprises.

Pay Vendors Early and Frequently When everyone else is telling you to stretch out vendor payments to ease your cash flow, I’m telling you to do the exact opposite. Why? I want you to stand out to these critical business partners who ultimately play an integral role in the success of your business. One of many troubling occurrences caused by this pandemic has been the product shortages now befalling many manufacturers. The delivery of the material and labor they need to build, sell and ship the product you need has been hampered, which is now having a negative impact on your ability to sell and deliver that same product to your customers. One way to improve your chances of getting to the front of the line is to show some love to your vendors by paying them early.

Embrace Technology Here’s a fun fact: Our CPA firm traditionally prepares approximately 1,800 business and individual tax returns every tax season, including many related face-to-face client meetings and the delivery of paper copies of tax returns and payment vouchers. In March, we moved all of that to emails, PDFs, e-filing and teleconferencing, pretty much seamlessly.Ask yourself what efficiencies, and therefore cost savings, your store can realize by taking any processes online.

Manage Your Debt Lastly, here’s a lesson for the future, which is the same one I imparted to people 12 years ago during the last economic downturn. One thing you can always count on during times of great economic bliss: They will eventually end, and no one knows exactly when. Manage your debt accordingly to make sure you can still make all debt payments during challenging times and put aside money for a rainy day. This can literally make the difference between your store’s financial survival or failure during tough economic times… like those caused by a global pandemic few saw coming. MI

Alan Friedman, CPA, provides accounting and financial services to music industry clients. He is a frequent speaker at NAMM U seminars and can be reached at 860-677-9191 or alan@fkco.com. Visit his website, fkco.com.

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