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.
"If cash is king, then cash flow is emperor"
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
Fail to prepare and prepare to fail
There are three steps to take when a crisis ends to better prepare your working capital cycle, should there be another shock.
- 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.
The right protection levels
Entrepreneurs are often wary of spending on things that don’t seem important. However, some expenses that don’t feel crucial could become key as your business grows, and it’s important to recognise them early and plan for them.
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.