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Managing cash flow in a crisis

By Joe RobinsMay 20203 min read

With the unprecedented impact of COVID-19, even businesses in a seemingly healthy financial position are not immune from cash flow issues..

Cash flow is the lifeblood of a business, but with the unprecedented impact of COVID-19, even those in a seemingly healthy financial position are not immune. While managing cash flow is not a ‘one size fits all’ approach, there are some immediate considerations every business must keep front of mind when responding to a crisis.  

I sat down with GoCardless Chief Financial Officer, Catherine Birkett, and founder of bookkeeping and accounting platform Hot Toast, Sarah Lawrance, to discuss how businesses can best manage cash flow in a crisis. 

In challenging times, it’s important to stay calm. Take a step back and ask yourself; how can I best place my business to survive this crisis and come out the other side? 

“By setting that as your objective, it’s going to mean that you’ve got to make some pretty difficult decisions,” warns Birkett. Deciding on a viable operating cost to run your business is hard - when this impacts people - it gets even harder.

“But,” she adds, “it’s important that you take pride in the fact that you’re making that decision because the best thing for everybody - your employees, your customers - is that you survive.”

Transparency is key

Retaining jobs and serving loyal customers is the end-goal, and to stay on-track, business leaders need to be transparent in their communications. 

“I’ve always found that if I’ve been honest and straightforward with partners, be they a bank or suppliers, you’re much more likely to get support than if you try and pretend everything’s fine,” says Birkett. 

This attitude bodes well on the other side of a crisis too. When banks and stakeholders share trust with a business, they are more likely to help them in the future. 

Banks and financial organisations have effectively built COVID-19 response hubs overnight, explains Lawrance. “If you’ve got questions, they’ve got new departments that have been set up so you can give them a call.”

Plan for the future and keep lines of communication open

For businesses in hibernation, government support like rent reductions and wage subsidies have been a lifeline. But you need to develop a game-plan for how, and when, you plan to scale-up post-lockdown. 

At GoCardless, a crucial long-term focus for Birkett was retaining the business’ strategic vision for global growth. From the outset, she made it clear to stakeholders that scaling-back certain operations was a temporary response. 

For those in senior finance positions, having a strategic view of your business’ crisis-response plan is an opportunity to prove the value of your skills. 

“Be the truth-teller at the table,” says Lawrance; “I don’t think anyone goes into being an accountant because they want to be a number cruncher, it’s because we love business, we want to have an impact, and we want to help people succeed.” 

Once you have those tough conversations, they need to be communicated company-wide. For Birkett and the executive team, it took four weeks of planning to reach a crisis-response. “We really focused on getting to a place where we were going to be certain in our announcements when we made them,” she said. Since then, the company has shared monthly updates across the team to ensure people have a sense of how the business is progressing. 

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Get expert advice from GoCardless CFO Catherine Birkett on how to manage your cash flow in times of crisis.

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Write out a budget and boost efficiency

For Lawrance, she responded by developing flexible scenario plans for her clients. This approach considers the best and worst-case scenarios that could occur, meaning the business was ready for a range of outcomes. For businesses that have never used financial modelling plans, she recommends starting with a template from Eloquens

Until we have a COVID-19 vaccine, we can’t be sure what the future holds. It’s best to be cautious as we emerge from lockdown by recognising that no business is protected by its local economic environment.  

Work on building resilience by making your business model more profitable. Move to cloud-based solutions and technology-friendly systems to enable greater efficiency. 

Lawrance explains, “We spent a lot of time in the past twelve months making sure clients have had GoCardless in place so that we could reduce that cash conversion cycle. This is the time - if you haven’t already done that - to act on those kinds of things.” 

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