What to do if You Have a Cash Flow Deficit

November 18, 2020 | Written by: Sohail Afzal

What to do if you have a Cash Flow Deficit

COVID-19 has disrupted almost all types of businesses and the impact of the coronavirus on small businesses is horrific. Businesses around the world are facing a liquidity crisis. It is hard for business owners to manage their cash flows during this unprecedented time. Although, the Canadian government has launched various programs to financially support different sectors of the economy but it’s not enough for a self-sustainable business model. Cash flow problems can also arise when you expand your business and it is quite normal when you extend your business, you become overextended. There are certain ways through which you can improve your cash positioning. We have elaborated a few tactics to handle cash flow deficit which are as follows:

Renegotiate Your Financing Agreements

When you identify that your business is going to suffer due to a liquidity crisis and you anticipate that it will disrupt your business operations, you need to immediately contact your lenders to renegotiate all your financing agreements. You can ask your financial institution for a loan restructuring to help you get out of financial distress. You can renegotiate the current portion of your long-term debt and can also renegotiate the overall amortization schedule based on the liquidity situation of your business.

Dispose of Assets with Zero or Low Book Value

If your business has assets with zero or low book value, you should immediately dispose of such assets to generate cash for your business. If you don’t have any dispensable assets with you, you can still replace an asset that has a low book value with a new leased asset. This way, you can support your business by making sure you have positive working capital.

Negotiate with Vendors

When you have negative working capital, you need to contact all your vendors and request them to give you more time for payments. You also need to cut your business expenses to improve your cash flow position. If your suppliers are kind enough to give you extended payment terms on your outstanding invoices, it will certainly help you convert your cash flow deficit into a surplus.

Financial Forecasting

If you are capable of preparing financial forecasts, you can avoid financial problems for your business. You need to make sure that you are using reliable estimates for all of your expenses and that your budgeted expenses match up realistically with your projected income. Financial forecasting also helps you assess the success of your efforts to determine the long term viability of your business.

Accelerate your Receivables

This is one of the fastest ways to convert negative working capital to positive if you can manage to expedite your invoices. You should keep a close eye on your invoices and not hesitate to send your customers reminders and follow-up emails for the payment of outstanding invoices. You should also make it convenient for customers to pay by offering them additional payment methods such as Interac e-transfer.

In the end, GTA Accounting suggests that you use the above-mentioned tips depending on your business circumstances. These tips can be very helpful in avoiding cash flow deficits. Remember, you must manage your cash flows effectively as the success of your business is highly dependent on the effective cash flow management of your business. Feel free to contact us to help you improve your cash flow positions.

Sohail Afzal CPA Toronto

Sohail Afzal, CPA, CMA, MBA

Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.

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