Struggling with Cash Flow in a Time of Crisis

Struggling with Cash Flow in a Time of Crisis

As the COVID-19 pandemic stretches on, it is clear that businesses need to change tactics in order to survive this crisis. With sales down, cashflow tight, and no end in sight, small business owners have to figure out how to get cash flowing back into their business and keep staff employed. But how?  Here are some options for keeping your business afloat through the pandemic.


Understanding and monitoring your cash flow

The first step towards dealing with your cash flow situation is to understand and monitor it very carefully.  Whether you use a sophisticated cashflow management software, or a simple Excel spreadsheet, develop a template that lets you precisely project cash in and cash out, on at least a weekly, and preferably daily, basis.  You can’t manage your cash flow situation until you are able to very precisely project daily cash in and cash out., and outstanding balances. 

Remember that we are talking about cash, not accrual.  You may prepare your financial statements and tax filings based on accrual accounting, but you must manage your company based on cash.  Cash, to quote a cliché, is King.

Consider actual cash in, which may include cash sales and payments expected on outstanding A/R, and actual cash out, which includes vendor payments, utility and rent payments, salaries, taxes, and debt service, among others.   Again, you are focusing only on cash, not accrued revenues and obligations.


Reducing your existing cash outflow

The next step in preserving your business is to minimize your cash outflow as far as possible.  Cash preservation and expense reduction is the first key to turning around your company.  Start with casting a very close and cold eye over your entire expense structure and look for opportunities to reduce these costs.  For example, consider a salary reduction for your senior staff, and from there consider a lesser reduction to the salaries of middle managers.  Then look at other fixed expenses.  Leases can be renegotiated or you can get forbearance, travel and marketing expenses can be cut back, technology investments can be delayed, R&D spending can be reduced, non-essential employees can be furloughed, and new product introductions can be postponed.  Look for opportunities to trim variable costs (COGs), as well, including more efficient manufacturing processes, outsourcing some production, and shifting from internal sales staff to outside independent sales reps.



You may find yourself in the situation every week when you have to make some painful decisions about which payments you can make in whole, or in part, and which payments you are simply going to have to miss.  That is one of the less pleasant aspects of your situation, but it may be unavoidable.  Learn to negotiate with your vendors, your lenders and your landlord for waivers and forbearances.  In most cases, they will be sympathetic to your situation. 


Find new ways to create cash flow

The pandemic forced countless businesses to shift to alternative models of customer interaction, for example going to curbside pickup and delivery, and shifting to on-line sales. However, because these models limit the number of customers businesses are able to serve, many have found themselves struggling with cash flow.

Continuity through the pandemic and beyond requires creative solutions to cash flow problems. In addition to cutting costs wherever possible, look for ways to serve more customers while staying COVID-safe and increasing cash in-flow.  For example, consider lowering your prices, offering bulk discounts, or giving cash discounts.  Shift more to e-commerce, to reduce sales costs.  Add new product lines and delete non-performing lines.  Reduce the terms you offer your customers, if possible, perhaps from 60 days net to 45 or 30.  Approach existing A/R accounts for accelerated payments, perhaps offering a cash discount.  


What to do when cash out exceeds cash in

This is a situation you want to avoid if at all possible, but when it can’t be avoided, consider your options.  You can tap whatever cash balances you may still have.  You can use any Lines of Credit you have at your bank.  As owner, you could lend your company money through a Promissory Note.  You could approach your existing shareholders for additional equity capital. 


Get a loan

Many small business owners found themselves shut out of the competitive Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) programs. However, that’s not the only option for accessing working capital during the pandemic. Small businesses that have an established relationship with the Small Business Administration can qualify for an SBA Express Bridge Loan of up to $25,000. Other resources for businesses include the Main Street Business Lending program, traditional SBA loans, and grants and loans from companies and other non-governmental organizations.  In some cases, your local county and city may offer grant and loan programs for small businesses.

Be careful about debt, though.  You have to repay it.  Analyze very carefully your cashflow and debt management capacity.  Don’t borrow money you can’t repay easily, or you are in worse trouble than before.  And by all means, avoid the Merchant Cash Advance programs; they are a black hole from which it is hard to escape.  


Raise equity capital

The tight lending environment, and the lack of debt service repayment capacity, has made it difficult for some businesses to access the debt financing they need to stay afloat. For those small businesses, it may be worth turning to equity financing. Equity funding can come from existing shareholders, friends, family, angel investors, venture capitalists, or even equity crowdfunding. However, raising equity capital means sharing control over your company with outside investors, and disclosing your internal information to investors, so it’s important to understand the pros and cons of this option.  While small businesses are not usually expected to pay dividends, at least not initially, don’t think that equity investing is free or cheap.  


Consider a business sale or buy transaction

Are you struggling to make ends meet despite a loyal customer base? If you have reached a point where you don’t think you can turn things around, consider the option of selling your business.  Even if you are losing money, you may very well have assets that have value to buyers, such as competitors or private equity groups.  These assets could include customer lists, technology, intellectual property (patents), location and market territory, and plant and equipment.  Working through a business broker, you may find that there is value to your business, even if currently unprofitable. At the least, you can recapture a portion of your original investment.  This may be a preferable option to declaring Chapter 7 bankruptcy.

On the other hand, if you have a solid business and wish to grow further, consider an acquisition. Acquiring another company, as a horizontal or vertical integration, can be a significant stepping stone to rapid growth.  Consider a competitor who is struggling, or a firm that is complementary to your operations.  An acquisition could add operational and marketing strength, operational cost reduction, and technology expansion.  In the current economic climate, you may very likely fine some bargains.  


When to file for bankruptcy

If bills keep piling up and your attempts at generating cash flow prove unsuccessful, and you are unable to sell your business, it may be time to consider bankruptcy. Chapter 11 bankruptcy lets a business renegotiate its debt in order to get relief from creditors and become profitable again. 

Since the passage of the Small Business Reorganization Act of 2019, enacted in February 2020, Chapter 11 bankruptcy has also become easier and more affordable for small businesses. Sole proprietors can file a Chapter 13 bankruptcy to restructure a business as long as their debt falls under program limits.

Before filing, it’s critical to consult with a bankruptcy professional to assess whether bankruptcy is the right choice for your business. If your business lacks viability in the new economy or has unmanageable debts, a Chapter 7 dissolution may be a better option.



The COVID-19 pandemic has proven to be a long, difficult road for small business owners, and the situation is far from over. While countless businesses struggle with closure, other small business owners are finding creative ways to keep their doors open through the pandemic. 

From diversifying your business, managing your cashflow, selling or buying a business, or securing a capital infusion, Hannover Consulting ( can help you to take advantage of the resources available to help your business weather this crisis.

You are welcome to contact us for a free two-hour consultation.