Your business is liquid if you can meet all payment obligations in the short term. But the developments surrounding the coronavirus affect your bank account. You see your income falling, but the bills, interest and taxes still have to be paid. Right? With these 6 tips, you can keep your payment obligations under control.
Make a liquidity forecast: that’s your basis
Knowing what your liquidity position means per week is perhaps the most important thing to do now. But how do you do that? In itself it is not that difficult. You start with your bank balance today. Then you put all the income you expect per day and the expenses you plan to do underneath. So: your initial balance + your income – your expenses = your liquidity position during that period. Also, and maybe right now, you do this for your private position as well. A plus is fine, but with a minus you have to come in action.
Do this for a few weeks or even a few months ahead. In fact, as long as you have a view on your income (assignments) and expenses. On this basis, you decide whether additional funding is necessary. In order to accommodate entrepreneurs during the current corona crisis, the government has put in place additional arrangements.
Explore your options
After you have prepared the liquidity forecast, look separately at your debtors, your creditors, your possible stocks and your private expenses. In the next steps, you analyse the obligations and the possible space you can create. Think, for example, of delaying repayments to your bank (a bank is also just a creditor).
Contact your debtors
Are your debtors still able to pay within the agreed time limit? Contact them to gain insight into that. Consider giving a discount if they can pay early. This may be possible for entrepreneurs with customers with high dependency. This obviously costs money, but you assure yourself of cash.
Many large companies work with purchase numbers (Purchase Order / PO numbers). Don’t wait till the end of your assignment or order, but arrange a purchase number well before you send your invoice. Don’t you have it in time? Then it often takes some time before you have this number and you can send your invoice. So always ask how this process works for your client.
For longer assignments, you may be able to work with sub-invoices. This may be even more beneficial than a pre-payment in combination with an invoice at the end of your assignment.
A financing option specific to debtors is factoring. In this form of debtor financing, a factor company finances your debtors, also known as deposit. The factor pays your outstanding invoices, so you will immediately receive the amount of the invoice. You will of course pay the factor for this a fee.
Rate your inventory position
Do you keep a supply? Make sure it’s workable for a certain order period, but minimize it. Stock costs money. Agreements with your suppliers about delivery times can help. Occasionally selling ‘no’ once in a while, doesn’t have to be a big problem in itself. As long as you inform the customer when it is delivered. Calculate what this means for your liquidity position. After all, that is the reason to assess your stock position.
Find out who still owes money to you
Now that you have a grip on your debtors and stock, look at your creditors. Which parties still have money from your company? Organize your creditors into equivalent groups:
- Suppliers of goods and services related to your primary business process, i.e. your trade.
- Suppliers of goods and services for your business, such as energy suppliers and telephone companies.
- Your landlord or your mortgage lender.
- The Tax Authorities, municipalities and other governments.
- Staff. Fixed, temporary, flexible etc.
Check for each creditor group to see if you can make agreements on payments and whether you can use arrangements.
You may be able to agree payment arrangements with creditors from the first group. One possibility is to draw up a payment schedule. This means that you agree to spread the still-to-be-paid sum over a longer period of time. So instead of €10,000 at once, you pay €2,500 in the next 4 months.
Suppliers in the second group often involve subscriptions. Assess whether these subscriptions are still of added value to your business. It may even be wise to review your package or take off certain less necessary extras.
For your creditors from the third group there are possible agreements to make temporary reduction or pay a month later. There are now known examples where tenants and landlords have agreed to do 50/50. So the rent for several months by half. Landlords regularly participate in this, because vacancy does not yield anything at all. Banks are easing their repayment regimes: make use of this.
The fourth group, the Tax Authorities, municipalities and other governments have taken special measures or are currently working on them. One of the corona measures introduced by the Tax Authorities is a deferral scheme. In addition, the government has broadened the BBZ scheme to relieve the extreme situation. This temporary provision of income support for self-employed and small businesses must be applied at your municipality.
Finally, your staff in the fifth group. This is your gold, so be careful with that. Motivated staff are also taking an extra step. But what if you don’t have enough work for your staff? Then see what arrangements apply to you, such as the Temporary Emergency Measure Bridging Work Retention (NOW).
What you do for your business can also be done for your private situation. So also draw up a private budget for the coming period. It is for everyone a personal decisions which expenditure is essential, important and not necessary. Walk through your subscriptions and judge whether you pay for something you don’t use or use.