We all wish the pandemic was over, but it’s not. As businesses continue to adapt, staying nimble is key. So is managing cash flow.
“The elephant in the room is COVID-19,” says Andy Whitman, managing partner of 2X Consumer Products Growth Partners.
Some retailers and distributors are paying slower. Some are delaying expansion plans for adding new brands and products.
“Good businesses, if they are smartly managed, are going to be better businesses on the back end of COVID-19,” Whitman says. “Because they had to be.”
Here are tips to thrive in the coming year, no matter what happens.
Nothing is going back to the way it was
Consumer purchasing patterns, both in terms of frequency and behaviors, have forever changed. Lean into it. Take calculated risks on industry trends from home cooking to direct-to-consumer e-commerce.
“Nimble brands are already thinking about meeting consumers there,” says Elliot Begoun, founder and CEO brand champion of TIG. “The inefficient brands are thinking when this all ends it’s just going to be back to the way things were. They’re the ones that are going to be caught.”
Do the Hirschberg Institute’s Balance Sheet Exercise
Gary Hirschberg, co-founder and chairman of Stonyfield and founder of the Hirshberg Entrepreneurship Institute, says most business owners are perennial optimists who underestimate when funds need to go out the door and overestimate how quickly funds come in. That’s why HEI suggests businesses manage their cash flow with an interactive forecasting model known as the Balance Sheet Exercise.
This HEI video on YouTube offers a good explainer with Hirschberg, Whitman and Begoun. Access the cash flow worksheet for free. How often a business updates the information and runs its numbers depends on how often a company is getting surprised they are running out of cash.
“There are lots of things entrepreneurs can do to help manage their businesses smartly,” Whitman says. “It’s blocking and tackling, not the sexy stuff but the smart stuff, to manage your cash flow and predict your cash flow.”
Break down financial obligations
To help with cash management, spread out payments. “Variablize things,” Whitman says. “It will help your cash flow, even if it means you’re paying 5% more across the year.”
Pay in installments instead of in full. Pay for insurance monthly instead of on an annual basis, Whitman says. Same for a piece of equipment; pay overtime instead of in full. Purchase in small quantities. Even though it’s inefficient because you lose some savings for not purchasing in bulk, it ties up less cash.
If you’re thinking of increasing the company’s head count, hire the person first as a contractor so it’s not a fixed commitment, and then decide after a few months. “Think fractionally before you think full-time,” Begoun says. “It’s very rare in brand growth you need to go from zero to a full-time equivalent.”
Cut SKUs that aren’t popular
Many companies, from Nature’s Path Foods to Enjoy Life, have cut SKUs since the pandemic began.
“Some of the most savvy entrepreneurs I know still have SKUs and flavors that aren’t setting the world on fire,” Whitman says.
There’s usually a minimum order quantity to produce an item. That ties up cash. Evaluate what items aren’t hot sellers and discontinue them. Slow-moving items aren’t worth keeping in a line, Whitman says.
Negotiate fixed expenses
Review fixed operating expenses such as rent and utilities as well as other services under contract. Negotiate prices and work on payment plans. “Do your homework and find out the landlord’s reactions before you ask,” Whitman says. “Because somebody else was ahead of you, especially for anyone starting now.”
Be clear about how badly your business was impacted by COVID-19, Whitman says. Make a specific statement such as: “Our business is off by 25%, and the difference between you helping us or not is the difference of us surviving and having a tenant or not.”
Extend the cash runway
If the business has a line of credit, make sure to maximize its potential. Draw down on lines of credit in case liquidity dries up. “These are the times to ask for additional lines of credit from your banks,” Whitman says. “If you have a line, draw down on it, or at least make sure it’s available.”
Seek approval to get covenants waived as long as possible. “Banks will not be surprised when you ask,” Whitman says. “They are surprised if you don’t ask because everybody is asking.”
Banks tend to be more forgiving in these environments but every situation is different, he says. Regardless, you don’t know if you don’t ask.
Speed up cash conversion
This is where a lot of companies fall down, Begoun says.
Minimize the days of inventory. Review what is essential to order based on the current cash situation and opportunities for future sales, as well as what packing and raw materials are critical based on future availability. “Be nimble and find a way to convert cash as quickly as possible,” Begoun says.
Aggressively push to collect receivables as fast as possible, Whitman says, while pushing out payables as long as possible. “I know plenty of companies that they’ve gotten to 90 or 120 days and nobody’s called them,” Whitman says. “Mathematically, the faster you collect your receivables and longer you stretch your payable is a good thing for cash.”
Outsource collecting receivables
To get cash quickly and to better manage their cash flow, Whitman says some businesses turn to C2FO, a marketplace that works with vendors and enterprises to manage accounts payable and receivable via its online platform. “They are experienced in dealing with CPG receivables,” Whitman says. “And you can sell your receivables to them.”
C2FO works with many creditable retailers, including Kroger and Costco, that aren’t at high risk for going under, Whitman says. “They take a small discount on your receivables and give you something less than 100% of your dollars and know that Kroger is going to pay them in full 30 days later,” Whitman says. “It is fairly common and the vast majority of companies in our sector don’t know anything about it.”
Strategize labor costs
Before making any changes to the workforce, ask: What are you trying to achieve? This isn’t about staying lean, Whitman says, as it is about staying nimble.
If a department or a role is no longer relevant, then it’s time to trim the payroll, he says. “A lot of businesses don’t have enough heads, that if you lay off one person it’s not transformational,” Whitman says. “There are lots of other things you can do that can sometimes have a bigger impact.”
If the idea is to save money while “weathering the storm” but staying prepared on the back end, consider furloughs or across-the-board 10% or 20% pay reductions, Whitman says. Although painful, it allows the company to keep everyone to get to the same dollars, especially if there is a star employee you will need when business returns to normal.
Email more newsletters
More consumers than ever are in front of their computers. Create an email marketing campaign with newsletters that showcase that the business understands the problems its consumers face. Give helpful tips staying healthy, how to have a mental vacation or other content that is relevant to your audience.
“It needs to be empathetic,” Begoun says. “It can’t be self-promotional, otherwise, that does get annoying. Send things that are going to be reflective of where people are, they want to hear themselves.”
Keep it short, precise and include a video to be most effective. Begoun’s philosophy: Don’t worry about emailing too much until a bunch of people tell you otherwise.
“Most of us triage our emails so if it’s out of sight, it’s out of mind,” he says. Don’t reduce your newsletter frequency because you are worried about being a pain.”
Build brand awareness by marketing directly to consumers
Getting consumers to initially find a product and then buy it is the most expensive element for a business, Begoun says.
“Brands that are doing well are solving a problem or meeting an unmet need,” Begoun says. “Companies that are being the most efficient and nimble are those that are moving their point of discovery closer to where that problem is more pronounced or acute.”
That depends on the brand. “Know where your consumers are and their sources of information to drive engagement and not get lost in the noise,” Begoun says.
Begoun is seeing a re-emergence (believe it or not) of telemarketing. Wellness products are also partnering with naturopathic offices as well as CrossFit gyms and yoga studios. Be accessible online but also in person to help drive discovery of your product, he says. Build density in a targeted region before expanded geographically or going into distribution to give more flexibility.
For example, when New Zealand-based Manukora’s Mānuka Honey wanted to expand from its best-selling e-commerce into brick and mortar in the United States, they committed to a year of only building density in California, Begoun says.
Influencer marketing continues to be highly effective but Begoun recommends partnering with micro (0-15,000 followers) and nano influencers (15,000-50,000 followers) on social media. Back it up with a good call-to-action on the company’s website to start engaging consumers by nurturing a relationship that will be built over time.
Begoun points to Otto’s Naturals Cassava Flour, which has nearly 59,000 followers on Instagram and focuses on a niche audience. “Lean in and go deep,” Begoun says. “Solving for your food tribe is a very effective strategy for being efficient and nimble.”