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COVID-19: how to balance protection and preparedness for your SME business

Many businesses are assessing the risk and vulnerability in their operations. We explain how to develop an effective risk and contingency system

With COVID-19 affecting countries worldwide and various economies shuddering to halt, small and medium-sized enterprises (SMEs) face multiple challenges. Supply chain, logistics, and sales disruptions are compounded by funding and cash flow management issues. So, how do entrepreneurs counter these challenges and ensure their businesses are protected in both the short and long term? Here are some actions that you can take both now, and for the future, should another shock hit.

Cash is king in running any business. With cash flow challenges magnified by  COVID-19 , even profitable businesses are not immune. Entrepreneurs should closely manage and control cash flow while assessing how long it might take for supply and demand to return to normal.


Four-step approach to manage tight cash flow

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1. Manage cash inflows

Customers bring in cash so make it as easy as possible for them by offering a variety of ways to pay, including the latest digital payment platforms. Consider offering incentives to customers who pay early and institute a process for tracking those that pay late. Make good use of the systems provided by banks to monitor and track receipts and payments.

2. ...and cash outflows

Where possible, time your spending to suit your business, not your vendors; consider renegotiating extended credit terms with your suppliers and minimised lead times for delivery.

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Lady on phone speaking to suppliers

3. Manage access to your cash

Do you know how quickly you can get ready money when your business needs it? Cash and savings account are liquid assets and, to ensure cash is not tied up unnecessarily in inventory, you can monitor your inventory turnover ratio - how many times in a period you sell your entire inventory stock. This should also be benchmarked to your industry peers. Knowing how quickly you can collect your cash from customers, will help you with a good view on your access to ongoing cash inflows for your business.

4. Make your cash work harder

Actively search for higher interest rates on your transactional current accounts and look out for surplus cash that isn’t working hard enough so you can maximise your yields with shorter term investments and insurance.

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  • Review your own credit terms and amend them if you see room for improvements, such as giving clients stricter payment terms.
  • Look for a credit line before you need it. It’s easier and cheaper to secure credit when your financials and the economy are healthy. Planning ahead also helps ensure you don’t end up overpaying for facilities; the interest rates charged for short term loans are typically higher than those for longer term facilities such as property loans.
  • Protect your business assets when it is affordable. Basic insurance will be key to business continuity in case of a setback.

When getting the business up and running, consider getting basic insurance. This typically includes employee compensation, fire protection and public liability.

When scaling up the business, think about extending your level of protection to include fixed assets and liabilities. It’s also a good time to ensure the company can cover its debts and obligations with some payment protection insurance.

When the business is reaching its full potential, owners should be looking to ensure sustainability, putting retention plans in place for key employees and making succession plans for the business.

All in all, there are four key insurance products you could purchase:

  • Key person protection – This helps the company survive the blow of losing the person who is helming the business.
  • Credit protection – This ensures loan payments can be fulfilled should the person running the business is no longer able to work.
  • Shareholders insurance – This ensures that there is available funding to buy shares from your fellow shareholders if circumstances mean they need to sell.
  • Employee compensation – This includes an endowment policy or other plans to retain key employees in the company.

We believe small businesses can, and will,  play a key role in the COVID-19 recovery if they can weather the storm. Businesses that respond well won’t only survive but can build a foundation on which to thrive in the future.

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