July 06, 2020 | Posted in:

Recovery from COVID-19: Small Business Cash Flow

At times like this, having cash on hand could mean the difference between keeping business operating or closing your doors. With so much at stake, it’s incredibly important to have a cash flow forecast and plan for the next 12 months. There are four key steps to creating your plan.

Step #1: Gather historical data and build a template.

Use tax returns and financial statements to get a picture of your operations over the past few years. Alloy Silverstein has a template you can use to show sales revenue, receivables, expenses, and bank balances.

Step #2: Project revenues based on current conditions.

Here are some things to think about. Now is a good time to focus on driving high-margin products. It may not be the best time to cut prices because this reduces profitability. Consider questions such as will you be at your usual capacity and will customers be paying immediately? Be sure to forecast when cash will be coming in, not when you’ll be invoicing.

Step #3: Review your expenses.

First, identify critical vendors. Those who are central to your business and with whom you have a strong relationship may be willing to negotiate payment terms. Any delay in payments will help your cash flow position. Also, be cautious with your inventory. Don’t waste cash on materials you don’t need now.

Step #4: Analyze your projections.

Are they realistic and are they flexible? Be prepared to change your forecast with changing conditions. Create a plan with multiple scenarios. Also, be sure to discuss your projections with your management team. You’ll want their buy-in and you’ll want everyone on the same page.

If you’re projecting a negative cash flow, there are some options to consider. Try to get a loan for your shortfall. Speak with your landlord and see if they will extend your lease and your rent due dates. Consider cutting salaries further. That’s a difficult decision, but you can’t hire employees back if you’re not in business.

Most importantly, measure your forecast with actual results. If you’re falling short of projections, you’ll need to adjust your plan accordingly.

Click here for a template and more tips on forecasting cash flow for your small business.

Cash is essential to remaining afloat. Try to stretch every dollar as far as you possibly can to maintain the business you’ve worked so hard to build. Alloy Silverstein is here to guide and support you.


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