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Having a concrete plan in the event of an economic downturn is key when it comes to business success and longevity, as is knowing how to manage your business's cash flow. — Getty Images/katleho Seisa

It doesn't take an economist to see that COVID-19 has taken its toll on people's jobs and finances, especially among business owners.

A PNAS study [1] of nearly 6,000 business owners demonstrates the financial fragility of American businesses. Among businesses with more than $10,000 in monthly expenses, owners had a median of two weeks' worth of cash on hand in late March, as the pandemic began to take hold of the United States.

Despite this, businesses have been remarkably resilient: June data from the U.S. Chamber of Commerce found that more than half of business owners surveyed [2] (56%) felt comfortable with their company's current cash flow situation at the time of the survey.

No business could have anticipated the full impact of the current pandemic, but the ones who are best weathering the storm had likely already prepared themselves for financial ebbs and flows. Markets and economies are cyclical, and it's always wise to plan ahead for any unexpected cash flow interruptions, whether that means building up your savings, establishing a line of credit or simply knowing where to turn for financial help.

"Having access to a line of credit can be a lifeline for business owners who need quick access to cash, need to buy equipment or inventory, or run into an emergency," said Jennifer Roberts, CEO of Chase Business Banking.

Planning for longevity: How to anticipate financial ups and downs

It's impossible to know when a crisis will strike, so businesses need a contingency plan. Chase for Business recommends following these steps when thinking about yours:

  • Identify your most likely disruptions. Disruption can come in many different forms, but some of them have a greater chance of affecting your business than others. Separating the probable from the possible helps you chart realistic tactics and achievable goals.
  • Plan for different scenarios. Once your most likely disruptions are identified, start thinking through different scenarios that could impact your business, financially or otherwise, and what you could do both internally and externally to resolve them. This may involve figuring out your messaging and communication channels to share key information with customers, employees, suppliers and other stakeholders. Remember, your non-financial assets, including your reputation, brand integrity and customer service, can create a financial issue for you in the form of lost business if they are not handled properly during a disaster.
  • Determine how a disruption might impact your finances. From an operational perspective, you may need to adjust your cash-flow budgets during a disruption to ensure employees and bills can be paid on time. Consider how prepared you are for a financial emergency and how you'll cover your expenses if you're getting fewer customers or have to shut down.

Having access to a line of credit can be a lifeline for business owners who need quick access to cash, need to buy equipment or inventory, or run into an emergency.

Jennifer Roberts, CEO, Chase Business Banking

Tips for managing your current business cash flow

Cash flow management is one of the most important skills any business owner can have, especially during an economic downturn. Now is the time to get creative and figure out how to keep your business going with cash reserves.

When the economy bounces back, a strong cash position can also foster future growth. Follow these tips to help you better manage your business cash flow and prepare yourself for financial longevity:

  1. Identify and reduce costs. Right now, many businesses are watching their expenses carefully and keeping track of every penny spent. This is a good practice to maintain during any economic climate, but during a downturn, having detailed knowledge of your business costs can help you make a better financial plan. Look at where you're spending the most money and think about ways you might be able to reduce that budget, such as modifying employees' work schedules, negotiating vendor contracts or switching to a less expensive supplier.
  2. Take advantage of flexible financial solutions. Many financial institutions offer flexible, digital financial solutions to help customers make the most of their money. One key part of this equation is collecting and making payments quickly and seamlessly. Ask your bank about its online payment options, such as online bill pay and ACH collections/payments, as well as mobile money transfers, check deposits and peer-to-peer payments through programs like ChaseQuickPay® for Zelle®.
  3. Establish a line of credit with a trusted financial institution. One of the most important financial tools a business can have is an adequate line of credit to draw from when cash is tight. Unlike a one-time loan, a line of credit allows you to borrow (and pay interest on) only as much cash as you need at the moment. Once you pay back what you've borrowed, the credit becomes available to you again. It's a smart solution for businesses that need to cover expenses while waiting for more money to come in, and you'll have peace of mind knowing that money will always be there when you need it.
  4. Get help from a knowledgeable advisor. If you're struggling with how to approach your finances, a trusted financial advisor can help you find the best course of action based on your circumstances. If you've built a strong relationship with your business's bank, you already have access to the help you need.

“The most important thing we can do is understand our customers' pain points and vulnerabilities and provide the best solutions and advice to protect them," Roberts told CO—. "Our bankers across the country have a lot of experience understanding different industries, local community trends, and the many challenges and scenarios that business owners have to work through.”

[1] The impact of COVID-19 on small business outcomes and expectations, conducted March 28 – April 4, 2020 (Proceedings of the National Academy of Sciences of the United States of America).

[2] Small Business Coronavirus Impact Poll, conducted May 21 – 27, 2020 (U.S. Chamber of Commerce).

Need financial solutions to help you manage your cash flow? Visit Chase for Business to learn about the tools to help master digital banking for your business.

For Informational/Educational Purposes Only: The views expressed in this article may differ from other employees and departments of JPMorgan Chase & Co. Views and strategies described may not be appropriate for everyone, and are not intended as specific advice/recommendation for any individual. You should carefully consider your needs and objectives before making any decisions, and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results.

Zelle and the Zelle related marks are wholly owned by Early Warning Services, LLC and are used herein under license.

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Published September 30, 2020