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  • Mike Kern, CPA

Coronavirus and Cash Flow

As I write this on April 4th 2020, COVID-19 has taken the world by storm. The cases seem to be ramping up and governments around the world have taken action, forcing people to stay home and businesses to close. All of this has led to a government-mandated recession as they work tirelessly to stop the spread of the infection.

Businesses are at a breaking point where their revenues are being slashed in a matter of weeks, with no end in sight. Business owners are faced with tough decisions such as closing their business, letting go of employees, or decreasing their pay. In the midst of this chaos, cash flow is more important than ever before.

Cash flow is the lifeblood of a business. Maintaining and even increasing cash flow keeps your business financially healthy. Here are 6 options for improving cash flow.

1. Cut Expenses

This applies to EVERY. SINGLE. BUSINESS. The very first thing you should be doing is going line by line through your profit and loss statement and asking yourself, or your team, why do we need this expense? If the answer is not a good one, you need to cut it. This is a great time for your business to get lean, more streamlined, and more efficient. Does every employee need a Zoom account? Do we need the most advanced package in Quickbooks? Do we need to be paying a premium for our business insurance or are there cheaper options?

If you realize you can’t cut any more non-employee expenses, unfortunately, the next step is to consider your employees. The harsh reality during the pandemic (and other situations where cash flow is limited) is that you may not be able to keep all of your employees or pay them the same.

As a business owner, you may love your employees and fight to keep them - but if you are forced to declare bankruptcy, you won’t be able to keep any of them! The government is increasing the amount of unemployment pay and the length of time someone can be on unemployment due to COVID19. Be sure you are aware of these options so you can help guide your employees through this difficult time.

2. Accounts Receivable (A/R)

There are often inefficiencies in A/R that slow down the cash flow cycle. Effectively, with A/R you are loaning money to your clients. You provided a product or service to them and are owed a payment for that product or service. You may give deadlines, like Net 15 days or Net 30 days, but at some point you need to collect that money - just like a bank will collect your mortgage one way or another! The biggest mistake I see owners make is not sending invoices out on time. Make sure you are always sending your invoices out ASAP to shorten the time it takes to get paid. Also, considered instituting a discount if they pay within 7 days, or even a late payment penalty if they don’t pay by the due date. This will encourage your customers to pay earlier or on time.

Unfortunately, collections are a real necessity in every business that carries an A/R balance. Customers aren’t banging down the door to pay you so if you let them off, they aren’t going to think twice about it. Most accounting softwares have a way to automatically send invoice reminders at a set time. You can set them up to go out on the due date, 15 days after the due date, and even continuing past that. Consider reaching out personally to these customers to ask when you can expect payment. If they are disputing a certain invoice, allow them to voice their concerns but then make sure they pay the other non-disputed invoices they owe you.

3. Accounts Payable (A/P)

On the flip side, managing Accounts Payable efficiently is another key to having sufficient cash flow. You should be reviewing your A/P on a weekly basis. Make sure your accountant or bookkeeper accurately records all of your bills in your accounting system, with due dates. Efficiency with accounts payable means appropriately using the terms that your vendor has given you for payment. If they are Net 30, then make sure you are not paying them in 15 days unless they offer a discount and taking that discount makes sense for your business. Consider negotiating with your vendor about terms. If you are a good paying customer & make timely payments (you should) then I am willing to bet the vendor will allow you to push the terms back if need be. I am not recommending you pay them late but only that you are appropriately using the time allotted in order to manage your cash flow effectively.

4. Allow Credit Card or ACH payments from Customers

Giving customers the option to pay via CC or ACH can drastically reduce the time it takes for the cash to hit your bank account. Most invoicing software has the ability to accept CC or ACH payments over email. When you email an invoice to your customer, they will see a link that says “Pay Now” where they can enter their information to make payment. There are two benefits to this.

1) The cash hits your account much more quickly than a check.

2) Your customer has the ability to pay as soon as they receive the invoice, which will help them remember to pay. If they were paying by check, they may file the email away until they cut their weekly or semi-monthly checks, or worse - they may lose it in their unorganized email inbox!

Now, the one drawback of this approach is a fee that you must pay per transaction. For a credit card transaction, the fee may be 2-3%. ACH fees can be around 1%. You’ll have to do a cost-benefit analysis to determine if these fees are worth it, in order to receive your cash sooner. (If your business is really hurting for cash flow, it’s worth it; if you don’t mind waiting on a check or calling clients to resolve A/R balances, you could pass it up.)

5. Upfront Deposits

Regardless of the cash flow benefits, collecting deposits is a great business practice across the board. Deposits require customers to commit to your product or service, which creates peace of mind for the business owner. Consider changing your contract to require an upfront deposit before your services are started or your product is produced/shipped. Getting more money upfront can greatly increase your cash flow and lower the time you spend on collections. It gives you more control of the business relationship with your customers and helps get you out of the business of loaning money (AKA Accounts Receivable).

6. Small Business Association (SBA) Loans

In general, I am against taking out loans. In the long run loans can hurt cash flow. When you take out large loans, you’re committing yourself to making large payments on that loan (alongside the other cash flow concerns that may arise during the pandemic) - which can produce a nightmare. However, the Federal Government is seemingly doing everything they can to help small businesses out in this time.

One of the main programs they are pushing with the new CARES Act are these SBA loans, specifically the Paycheck Protection Program (PPP) Loan. These are low-risk & low-interest loans that can greatly help out a small business’ struggling cash flow during this time. The PPP loan has a special provision that is very attractive. This provision allows for loan forgiveness, essentially a grant, for 8 weeks of payroll, rent, mortgage, & utilities cost. The total loan amount you are eligible for is based on 2.5 * your average monthly payroll cost. There are also some limitations to the loan forgiveness if you have either decreased your employee headcount or decreased their pay > 25%. For more information on the specifics of this loan, check out our article here.

I think it is wise for every business to pursue the PPP loan, mainly because of the loan forgiveness provision. There is also another SBA loan called the Economic Injury Disaster Loan (EIDL). This loan includes the potential to obtain a $10,000 advance that may not have to be repaid. The EIDL loan can be applied for directly with the SBA but the PPP loan should be applied for with an approved SBA lender. The details of these loans seem to change on a daily basis so be sure to check with your bank to see if they are approved to be a SBA lender.

The current economic climate does not seem to be improving anytime soon and so it is more important than ever to focus on your cash flow. I am confident that if you try to implement these 6 steps your cash flow will grow. If you would like to hop on a call with us to talk through your cash flow issues or to see how we can help with your accounting, email me at As always, do not hesitate to contact us with questions or comments! Stay safe, stay strong, and keep fighting! We’ll get through this.

Mike Kern, CPA


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