Five tips to improve cash flow in corona time

Cash flow is the lifeblood of any business. When the blood stops flowing or when a vein clogs, it can have dangerous consequences and even lead to bankruptcy. Due to the corona crisis, many companies are running into an acute cash flow problem (without being able to do anything about it). On the revenue side, (virtually) nothing more is coming in - despite business owners 's often creative and admirable attempts to generate alternative revenue - while costs continue. In this article, I will offer five tips for improving cash flow during these difficult times.

Tip #1: Take advantage of government emergency regulations

The government has recently taken several measures to help you as business owner if you run into liquidity problems due to the corona crisis. These include:

1. Extending state guarantees to banks through the so-called BMKB scheme;
2. Compensation for damages Covid-19 in the amount of €4,000.00;
3. temporary Emergency Measure Bridging Employment (NOW).

Re i) The Small and Medium Enterprises Guarantee Scheme (BMKB) allows banks to extend credit or expand existing credit facilities more easily and quickly. This is possible because, through the BMKB scheme, the Ministry of Economic Affairs and Climate Change (EZK) guarantees loans to business owners for a higher amount than before.

business owners can borrow (extra) money easier and faster as a result. My office colleague Erik Jansen wrote about this topic earlier.

Re ii) Is your company among those sectors that have been most affected by the cabinet measures around the coronavirus (COVID-19)? Are you suffering losses due to the forced closure, curtailment of meetings and/or negative travel advice abroad?

Then you can receive a one-time allowance of €4,000 through the Policy Rule on Allowance business owners affected sectors COVID-19 (TOGS).

For more information and how to apply, see the website of the Rijksdienst voor Ondernemend Nederland.

Re iii) Because of the coronavirus outbreak, the Ministry of Social Affairs and Employment (SZW) came up with a new scheme, the Temporary Emergency Measure Bridging Employment (NOW).

The NOW is designed to provide relief to employers facing turnover losses. It allows employers to continue paying their employees on permanent and flexible contracts. The NOW replaces the existing work-time reduction, which thus immediately expires. My labor law office colleagues wrote about the exact terms of the NOW scheme and how to apply for the scheme in this article.

The schemes I have mentioned are not exhaustive. There are numerous other emergency measures, and it is important that you consider which measures are best suited to your company. An overview of all emergency measures can be found on the site of the central government.

Tip 2: Apply for tax deferral

The tax authorities have introduced several measures that you can take advantage of to improve your liquidity position. These include:

1. Special moratorium on payment of various tax debts;
2. Reduction of your provisional income tax or corporate tax assessment.

Re i ) You can request special deferral of payment for all income tax assessments, Health Insurance Act, corporate income tax, payroll taxes and sales tax (VAT), gaming tax, excise tax, consumption tax on non-alcoholic beverages, insurance tax, landlord levy, energy and other environmental taxes for a period of 3 months. Longer deferral is possible.

Re ii) Are you expecting lower profits due to the corona outbreak? And are you now paying a provisional income tax or corporate tax assessment? Then you can change your provisional assessment so that you pay less tax immediately. To do so, reduce your income. If the amount of the new provisional assessment is lower than the tax you already paid in the first months of the year, you will be refunded the difference.

See an overview of these and other IRS schemes and how to apply for them here.

Tip 3: Engage with your contracting parties and implement an efficient accounts payable and receivable policy

You can ask your bank to defer repayment and interest payments. For example, some banks have already decided that MBK companies, with financing of up to 2.5 million euros, will be granted a six-month postponement of loan repayments. More is often possible by mutual agreement.

You can ask your landlord for a postponement of rent payments or a reduction in rent during the crisis. The landlord also has an interest in ensuring that his tenant does not go bankrupt. My office colleague Jeroen Brinkman previously wrote about the obligation to pay rent during these times.

You can ask existing creditors for longer payment periods, a payment discount or a payment plan. With new creditors, you can agree longer payment periods. By agreeing longer payment terms with creditors, negotiating discounts and/or paying invoices on the last day allowed, your cash flow improves significantly.

You can ask existing debtors to repay early. With new debtors, you can agree that they will pay immediately or within a shorter period than you previously used. You can also work with installment invoices.

In addition, experience shows that a sharp accounts receivable policy pays off. This means immediate invoicing whenever possible, a clear invoice, keeping a sharp eye on deadlines, sending immediate reminders and calling after them, and taking immediately announced follow-up steps.

Tip 4: cut costs

You can significantly improve your liquidity position by cutting costs. This can be done, for example, by - however painful and drastic - not renewing temporary contracts of staff members, no longer using temporary workers, temporarily stopping travel allowances because your staff works from home, taking a good look at your purchasing costs of goods and keeping a small(er) stock.

Some companies can also help each other by loaning staff to each other, for example, because one employer is short of hands and the other cannot or should no longer allow its staff to work. My office colleague Nieske Nijkamp explains when this is possible.

In short, this is the time to take a hard look at your company's costs and see where you can save.

Tip 5: Attract (alternative) financing and be creative to generate income

Although financiers in these times are significantly more cautious than before to provide financing, it is certainly not impossible. If your company is fundamentally financially sound and has potential, then even in these times, financiers are certainly still willing to provide financing (certain given the still low interest rates and search for yield).

Some parties from whom you may be able to raise financing:

• Your own bank. As mentioned, this is easier because of the expanded BMKB deposit scheme;
• Your shareholders;
• Venture investors, business angels and informal investors;
• Contacts from your own network such as business contacts and family members;
• Factoring companies and leasing companies.

You might also consider giving financing parties - for example, in the absence of collateral - a stake in your company or working with a convertible loan.

In short, there are numerous options for attracting (alternative) financing, where it is important to find the solution that best suits your business and can be realized in the short term.

Regarding alternative income, I see numerous examples in my immediate environment of business owners being creative and coming up with alternative ways to maintain (somewhat) their liquidity position. Think of restaurants offering home delivery, sports clubs teaching classes via livestreams, etc.

In short, be creative. You may even find that by doing so - after these difficult times - you have invented a permanent and additional revenue model.

Conclusion

Proactively managing a company's cash flow is one of the most important things a business owner must do both in good times and bad. If a cash flow problem occurs, it often poses an acute danger to the company by making it unable to meet its obligations. In this article I have described some measures that can help you keep your company healthy - even in these difficult times.