Online Small Business Cashflow Management During Crisis or Recession

Mar 29, 2020

5 Actionable Tips for Online Small Business Cashflow Management During Crisis or Recession.

These are tough times for online small businesses like course creators, consultants, coaches, bloggers, content marketers, and lecturers.

Online small businesses, like you, need to have cash flow management to survive and come out even stronger during a financial crisis or recession - as we had with the Coronavirus / Covid-19 in 2020.

I will share 5 financial tips, that I shared with my clients, to help you survive this, any other recession and be ready for recovery. I am going to make this post really short and to the point.

Before the 5 tips, let's start with a fundamental principle.

Please don’t use your cash reserves.

For any sound business, the objective should be managing this crisis, and any crisis or recession for that matter, with the cash that we generate from our business, not touching the cash reserves or further financing, funding our business.

This crisis, and any crisis or recession, will soon pass but we need to survive, be ready for the worst-case and maybe, even make more money (tip 4).

I will give these 5 tips to help you go through this crisis, and any future ones, with the objective of not touching your reserves and coming out stronger, ready for the recovery.

I know that not everyone can apply all of these and not everyone will have the same results. But I am sure of one thing, it will help to make a difference, both for your business and personal finances. Let’s get to it.

1) Manage your cash flow:

Check all your subscriptions

As an online small business, you probably have some subscriptions, mostly for the SAAS platforms that you use.

For your cash flow management during such a crisis or recession, please review your subscriptions and decide which are the ones that are so critical that you can’t do without and the ones that are nice to have, the ones that you can survive without for a while.

I don’t want to call out the names of some of those nice to have services - those that aren’t really that critical. They may differ for your business and those service providers also have a business to run, employees to pay but...

These are tough times, you need to think of your own business, family, and employees.

I am sure you can come up with those nice to have subscriptions (business and personal) that you can freeze for now - and even get a refund if you paid annually, upfront… And please do it NOW.

If you are tracking your subscriptions, it is great. If you don't have the full list (and even if you do), one practical way to manage this is to ask you your debit/credit card issuing bank to re-issue your card. This, by default, void your existing card.

Do this even for your personal cards. I am not saying cancel your cards, just ask your bank to re-issue and send the new ones to you. If they ask why, just say "I lost it", that simple. Your new cards will have new card numbers and CVC numbers (those 3 digit security numbers at the backside) - there you go, a fresh start.

You will see the service/subscription providers calling you, emailing you to re-enter your payment details. This is when you decide to continue or freeze (may even cancel) your subscription.

Yes...It is a headache, a burden but if you are in a crisis, recession, don't you think it is worth it?

If you decide to continue any subscription, and you probably will for some, please negotiate, ask for 3-6 months free subscription period. You may be surprised.

During the Coronavirus, Covid-19 period, I didn’t do this card cancellation piece because I track all my business and personal subscriptions in my Xero bookkeeping software, I know where I spend the money, which ones are fixed, which ones are variable, which ones are auto-paid and which ones are paid manually.

I reviewed them all and I froze my personal subscription to a famous content site, only $5/m but it counts. Canceled premium channels from my TV service provider.

For my business, I had some big ones frozen but as I said, I don’t want to call out their names, you may be using them as well.

I also wrote to each service provider, that I wanted to continue with, to ask for free periods - and I got some :-)

Each business has its own dependencies, must-haves, and nice-to-haves. You probably know yours. Make your decisions and ACT NOW, please.

The sooner you clean-up your subscriptions, the better. When everyone starts doing it, you are the last one in the queue. Plus, you start saving cash earlier.

2) Cut costs: Re-negotiate all other things not on your debit/credit card or on a recurring basis.

Your team, employees, and independent contractors? Tough one!

I know that these, and any crisis or recession, are tough times. Times that we need to have the most empathy, care, support for our employees, team, and people around us.

At the same time, we have a business to run, a family to feed, a retirement to plan, and thus the tough decisions to make. We need to survive and manage our cash flow so that we have a living, provide for our family, pay the rent, salaries of our employees and contractors.

And be ready to grow when the time is right, when the recession is over, be ready to re-hire people and reward our team for success.

But if we can’t survive, we may all be jobless, sooner rather than later. We may not be there when the crisis or recession is over. We don’t want that.

Each business is unique and will have its unique solutions. Here are some common precautions that can be taken immediately for your online small business cash flow management during such a crisis or recession.

You can offer 50% less pay to your employees for a period of time (say 3-6 months, until things get clearer). With no commitment or certainty, you may also think of paying them back that gap later if and when the business recovers or you may pay them a bonus if things recover.
Now may also be a good time to reconsider the effectiveness, value addition of your employees or independent contractors. You may decide to terminate, freeze some of those employments or services.

When making this decision, please do not make the mistake that many business owners do - please do not focus on seniority or title.

What is important now is the value added to the current status of your business. Focus on keeping those that add the most value to your business under the current status. If you have decided to stop ads and creatives, then you may not need that resource, at least for now.

Re-allocate your resources to the current status requirements. Can the ads / creative design person help you with the lead generation from another source, like chat widget on your site, or faster customer support for sales inquiries?
Are there activities that you can do yourself, versus delegating to a team member. These may be the times to do the extra hours for your business - if you are willing. You may consider taking over those activities and saving from a paycheck or contractor fee. If not now, then when?

I will cover this in the next tip 3... There may be unemployment and even employment incentives (and there are in the Coronavirus, Covid-19 stimulus package) for your employees and you to benefit from.

Rent? Even your personal one.

A crisis or recession is the time re-negotiate your terms with your landlord, both for your business and personal tenancy.

The priority is to reduce the rent, either permanently or for a period of time. This is the key focus and a tough one to achieve. Worst case scenario, you may get some interest free deferral of your rent payments but it is only delaying the problem - this is not necessarily what you may need.

If reducing the rent is not an option, then you may want to negotiate and ask for something else from the landlord - an opportunity to amend your contract to your favor.

You may ask to reduce the notice period to terminate the contract. You may ask the landlord to improve a certain infrastructure that you needed - redecorate the reception area, replace the lightenings with energy-efficient ones, install a dish-washer or a washing-drying machine.

You know your contract and requirements more than anyone else, you may be able to find other items to negotiate.

All other non-recurring or manual payment services:

For any other vendor, supplier that you work with a service-based fee or retainer, please apply the same logic and if you can, try to come up with better terms. Believe me, everyone is doing it during a crisis or recession.

3) Check the incentives:

In the case of Coronavirus, Covid-19, the House passed and President Trump signed the largest economic relief bill in U.S. history, a $2.2 trillion whopper. $1,200 payouts and other financial assistance measures are on their way to many Americans who are suffering from a swift but crushing economic crisis. This was at the time I wrote this article and I am sure there will be amendments and more to come.

Please also check for sales tax incentives for your state, and other potential state incentives.

For income tax, specific to Coronavirus, Covid-19, 2019 income tax payment is deferred to July 15th, though the June 15th quarterly tax is still due. Many businesses will probably have losses or lower taxes to pay but regardless, they will need the cash, the tax reserved in the balance sheet.

Please check all the incentives that are applicable for you with your accountant or CPA. If you don’t have one, Google it. You may be surprised to see some of the incentives that you can benefit from, specific to your case.

Your mortgages and loans:

Please check with your banks, mortgage providers for incentives, financial aid programs, interest-free deferral - they will get government support in one way or another, they can come up with a solution that would work for you both? Not guaranteed but you may be surprised.

The $2.2 trillion stimulus bill, passed for Coronavirus / Covid-19, relaxed some financial crisis-era rules to keep banks lending in these credit-crunched times.

Regulators said banks could ignore a tough new accounting rule that requires them to estimate future losses on loans.
Smaller banks won’t need to hold as much cash in reserve until the end of the year or the end of this crisis.

Capture your crisis-specific expenses:

Governments may either require an eligibility criterion for certain incentives or incrementally fund certain actions in response to a crisis.

Please create a Crisis Specific (e.g. Coronavirus / Covid-19) line in your ledger and track all your expenses in case any incentives come.

You should capture overtime paid, incremental sanitation expenses, incremental training expenses, losses due to the crisis like write-offs or stales or penalties, health support provided, etc.

4) Pivot / re-purpose your messages and offerings to "Today's Agenda"

This is not a financial tip but I am a CFO and I am going to say this.

Change your messages, product offerings and relate them to TODAY, the AGENDA of any crisis or recession.

In the case of Coronavirus, Covid-19 pandemic, the agenda, at least when I wrote this article, is primarily about 2 topics:

Coronavirus, Covid-19
The recession and how to survive it

In this case, everyone is working from home, the family is together, many people get bored and need entertainment or new hobbies easily doable at home, home exercise, etc.

Or, they need to revise their long term contracts, manage their online small business cash flow (could this be you?), know about the incentives, default scenarios, how to negotiate, etc.

If you are a Yoga, Pilates instructor, can you change your message and pivot your product to make this a family event.

If you are a consultant, coach (based on your specialty and strength), can you focus on negotiation skills, how-to-get government incentives, amending long-term contracts, employee layout procedures, re-structuring accounting, etc?

Teaching arts, cooking, photography - again, how can this be moved to a family event or in this boredom, many of us need new hobbies and maybe your online services, training can help us more today versus regular times.

It is all about your messaging to address TODAY's AGENDA - and maybe also a bit of pivot, update in your service.

I am not saying take advantage of the crisis or recession... It is about serving what people need TODAY, in these unusual times. You may help them and get paid in return. Survive this recession and get ready for growth in recovery time.

5) Change and adapt your advertising spend.

Please, check all your ads and be ruthless on the ROI, the returns from them.

Consider what I said above and see if there is a way you can adapt your ads. If you can, pivot your ads in that direction. Please do it ASAP and stop spending on low return ads, and make more relevant, today’s agenda focused ones - if you can.

I know by experience that Google Adwords started to show the ads in less relevant searches due to declining ad spend from many advertisers.

Check your ads' performance daily and be ruthless on the return.

6) Make your cash flow plans…

I said 5 tips but couldn't stop adding this 6th one. This is where you can see it all come together.

Please make a cash flow estimate for your business (and maybe even for your personal finances). You can keep it simple, do it for just 6 months.

On a spreadsheet, start with your current cash balance, add your worst-case scenario for income streams (based on the timing of the cash you get) and add your cash spending.

See how your cash balance is moving at the end of each month.

Are you able to keep the cash you started with - excellent work under today's circumstances.
Is your opening cash balance declining? You may want to look at your spending more ruthlessly, be more creative in income generation.
Is your cash balance moving to negative? You are in serious trouble. Other than looking at your income and expenses more ruthlessly, you need to take two more actions:

- Decide what you want to do with your business. How much runway (how many months) have you got to keep it up? When is it that you have to make the toughest decisions that you postponed?

-If you decide that you want to keep your business running despite negative cash balance because you believe in the recovery, then find funding resources NOW. It may be too late when you need them. In a crisis, recession period, you will not be alone seeing similar negative cash balances. ACT NOW and ACT FIRST to secure your funding.

These are tough times… Let’s survive and recover from this, and any other crisis in good health, financial health included.

If you are interested, you can subscribe to my newsletter. I will be sharing more on this subject, regular business and finance updates, and of course some promotional content, as well as other weekly tips. Hope to see you in my next article.

Until next time,

Cenk Tukel

Founder and CEO of Tukel, Inc Accounting

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