Cash Flow Management Strategies

COVID-19 has upended the world as we know it, shuttering businesses and snapping billions of wallets shut for anything but essentials. Call it a COVID-19 cash flow crisis—a true emergency for businesses that have seen a tremendous drop in sales thanks to coronavirus making us all shut-ins, or a stressful whirlwind for those who can’t keep up with the demand for hand sanitizer, weighted blankets and noise-canceling headphones our customers want without that preparation for a sudden spike in demand. Having to pay rent for retail locations and keep staff on payroll is an additional challenge when you’re not actually using that space to move product.

For nearly every business, cash flow is synonymous with survival. And retailers in China are facing down a really tricky short-term future that could serve as a crystal ball for the rest of us: A new survey from Tsinghua University and Peking University, shared via Deloitte, projected that if the COVID-19 crisis doesn’t significantly improve soon, about 85% of small- to medium-sized businesses in China will run out of cash within three months, while two thirds will be cashless within two. 

But there is good news: There are plenty of creative ways you can keep cash flow going in these unprecedented times.

Here are some sources to consider:

• Manage cash flow by mitigating costs
• Sell gift cards to boost your cash inflow
• Short-term cash flow strategies
• Funding from government relief programs
• Equity-free funding from Shopify Capital

Don't have time to read the full article? We brought in financial experts from New York accounting firm Lumsden McCormick, LLP to share strategies. Watch the webinar.

Manage cash flow by mitigating costs

If you have a retail storefront right now in a COVID-impacted country, your revenue stream has likely seen a significant dip. That’s cash inflow from sales, explains Shopify Product Marketing Lead Jeannie Nguyen. But cash flow management goes two ways—there’s inflow and outflow of cash to deal with too. 

We've put together a cash flow calculator to help you get a comprehensive understanding of your cash flow in 5 minutes or less.

Your cash outflow would be any cash that must be paid out, including major costs such as rent or leases, hydro and electricity, staff payroll, inventory, insurance and any other expenses associated with running your business. While these costs are still looming, there may be ways to mitigate them, considering the magnitude of the pandemic and its impact on everyone’s business. 

There will be cost savings in this time of crisis. You could think about alternate or temporary staffing solutions and maybe even make a deal with your landlord for reduced or deferred rent, Nguyen suggests.

You could also speak with your insurance broker. Freeing up some cash from the expenses you can mitigate while operating online can give you a longer cash run rate and help keep you going.

Sell gift cards to boost your cash inflow

Shuttering retail stores due to COVID-19 public health and safety measures has been incredibly tough on businesses. But take heart in this: Customers do want to help support the brands they love. And they can continue to do that by buying gift cards made available by retailers online. 

“If a merchant can sell gift cards today during this time, they’re getting the cash now,” Nguyen says. “That will help with their cash flow. It also incentivizes their customers to shop with them either now or later.” 

Merchants can further incentivize their customers to snap up gift cards by offering them discounts for redemption at a later date, adds Shopify Senior Product Marketing Manager Anthony Kentris. He suggests gathering a list of customers that purchased a gift card and, when consumer spending picks up again, businesses could send specific campaigns to these buyers and encourage them to spend more than that gift card amount. “Maybe it’s a collection with bundled products, or a percentage discount if they spend over a set amount of dollars—anything that will encourage them to spend a little bit more when they redeem that gift card,” he says.

This may not only help with managing cash flow, but also customer loyalty—think of it as a way of thanking a shopper for supporting your business through that tough time by buying a gift card when the pandemic hit. You can also consider partnering with another retailer who sells similar items or is located in your local community to help boost gift card sales. 

If you’re on Shopify, learn how to offer and activate gift cards. 

Short-term cash flow strategies

Make a deal with your suppliers

While you’re thinking about reducing your expenses—having that chat with your landlord, the bank etc.—you can also look to suppliers for a bit of a break and a new arrangement while COVID-19 impacts both of your business, Kentris suggests.

“One way to hold onto working capital is to take longer to pay suppliers.” Reach out sooner rather than later to see if you can come up with some kind of agreement that works for both of you in the short term, he says.

That should help preserve the integrity and longevity of that crucial relationship for the long run.

You can also consider pausing standing orders with suppliers. If you’re selling product that isn’t really in high demand right now, maybe you want to slow down production to avoid being stuck with inventory you can’t sell, Kentris says. “If this applies to you, rethink standing orders for raw materials and press pause on any auto-replenishing algorithms until you know more.” It might be a helpful way to delay future payments. “The sooner you can cancel or defer the order, the better for your supplier relationship.”

Discounting products

One surefire way to move product is by offering deals. As the above gift card strategy showed, you can bundle up inventory you’d like to get out the door through a gift card incentive offer. Or you can simply put items up for sale that you would like to speed through your inventory chain, Kentris says. 

“If you’ve got items that are underperforming or you’ve got a big stockpile of them, now’s your chance to free up cash” by putting them on sale. You may not be able to get as decent a markup as you would’ve in less turbulent times, but at least you’ll have cash coming into your business while also selling off your inventory, especially if your products are subject to seasonality. Your main goal right now as a retailer is to not be sitting on cash held up in inventory or deadstock, which could make up about 20-30% of what you have on hand. 

You can try to get that product moving by using inventory management or reporting apps to prioritize your items by value. An ABC inventory analysis will help you figure out which items create value for your business: A-grade items are the most valuable, B-grade are “middle of the road” and C-grade are low-value products that maybe don’t haul in the big bucks individually but together account for lots of small transactions. Sell those C-grade products! Bundle them, heavily discount them or sell them to liquidation retailers to help free up that cash flow to spend on stock that will actually sell at this time or in the near future.

After all, consumers do still seem willing to buy. Shopping is down across the board, but some brick-and-mortar demand has been transferred online since stores had to close during the pandemic. A survey from Engine Insights finds consumers have boosted their online shopping by 11% since the beginning of March, and new data from Statista finds shoppers in the United States have deliberately shifted their shopping to online since being confined at home, with 30% saying they’ve bought clothing and 27% saying they’ve bought health products online since COVID-19 hit. 

Filling a niche through fulfillment or product

Businesses can also take advantage of the restrictions major marketplaces have placed on themselves, such as how Amazon is only delivering essentials to homes, Nguyen says. If you’re able to do curbside delivery or send expedited parcels at a manageable expense, you can tap the market Amazon hasn’t been hitting due to those parameters they’ve now set.

Another strategy for increasing future cash flow could be the investigation of expansion into higher demand products: If you’re a more going-out-clothing brand, consider pivoting to sweats or other types of loungewear, Kentris suggests. “If you don’t know how long this will go on for, you can make some bets now” in terms of consumer demand. 

Funding from government relief programs

To protect the public, some governments have ordered businesses to close up shop. These same governments are now taking steps to protect those businesses by offering economic relief programs. Accessing this government financial support is a good way to mitigate cash flow concerns. 

The United States has offered low-interest loans of up to US$2 million USD through their Small Business Administration arm of government. Many states and cities have set up relief programs for their businesses—the City of Los Angeles, for example, is offering low interest loans between$5000 USD and $20,000 USD to help with job retention, while the state of Michigan is handing out grants of up to $10,000 USD for businesses with fewer than 50 employees and low interest loans between $50,000 and $200,000 USD for those with fewer than 100 staff. 

The United Kingdom and Canada are offering federal wage relief and tax deferral plans for business owners, including a 75% wage subsidy for business owners, announced by Canadian Prime Minister Justin Trudeau. Moreover, Canada has a specific relief plan devoted to cash flow: An offer to cover up to 90% of purchase order amount via the Business Development Bank of Canada to help maintain that relationship business owners have with their suppliers.

Shopify has amassed a great list of government funding initiatives announced since the COVID-19 outbreak (updated regularly).

Equity-free funding from Shopify Capital

“All of our merchants need cash right now. Having cash is what will keep your business safe and afloat until we know this is over,” Nguyen says. And in the face of uncertainty, investors have slowed down or, in some cases, stopped financing businesses.

In another spot of good news, Shopify has your back. Shopify Capital offers funding to help businesses access working capital quickly and accelerate their business growth at crucial moments. Since 2016, Shopify Capital has advanced ~US$885 million in funding, helping thousands of businesses on the Shopify platform. Best of all? We’ve been doing it without requiring equity in your business, and it’s fast—the money lands in your account within a couple of days after approval. You don’t need to pitch and your credit score will be unaffected.

LIFE Clothing Co., a Los Angeles-based lifestyle apparel brand, has taken three Shopify Capital advances to help invest in product, improve the quality of its product images and scale its pay-per-click advertising strategy.

“You’ve got to have money to make money,” Danny Banafsheian of LIFE Clothing Co. told Shopify in 2018, adding that, by his estimate, Shopify Capital accelerated the clothing brand’s sales by approximately nine months.

Shopify Capital is paid back via a percentage of your daily sales—on days where your sales are higher, you pay back more; on days where your sales are lower, you pay back less. This repayment structure is built to flex to your business. 

Nothing seems easy as the world navigates the new terms of this pandemic, but Shopify Capital really is: Eligible businesses will get an offer (check in your Shopify admin). Even better? It’s 100% digital and once you click to accept, the funds will be deposited in your bank account within two business days after approval.

Shopify Capital recently expanded to provide support in more countries and is now available to customers in the United Kingdom and Canada.

“This is a small part of our efforts to bring capital to more places and more merchants internationally, to help them better weather the storm,” Shopify COO Harley Finkelstein said in a video message tweeted from his account March 30. 

“Most businesses have a hard time getting the money they need. That's because big banks and traditional lenders don't understand the needs of independent business owners,” Shopify Vice President and General Manager Kaz Nejatian says. “With Shopify Capital, we’re giving businesses a simple, fast and convenient way to get the money they need to start, run and grow their business.”

Keeping up cash flow is an investment in your business, whether that’s reimagining it in the post-pandemic era or simply weathering the storm. Cash flow concerns in the time of COVID-19 needn’t spell the end of your business. We’ve said it before and we’ll say it again: You’ve got this.

Get financial planning strategies to protect your business during a pandemic

Watch our webinar with financial experts from accounting firm Lumsden McCormick, LLP.

Watch the webinar