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Managing cash flow in times of crisis

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AWMAC by Michelle Morrell
Michelle Morrell is the National Executive Director of the Architectural Woodwork Manufacturers Association of Canada. She can be reached at: michelle_morrell@awmac.com
The COVID-19 crisis brought about an economic shutdown that saw an unprecedented disruption to the supply chain worldwide. As a result, many Canadian businesses, both small, medium and large, were hit hard in their ability to manage cash flow during the pandemic.
A recent Royal Bank of Canada blog post highlights the importance of staying financially healthy during uncertain times. It offers six strategies a business can use to optimize cash flow during COVID-19.
While the woodworking industry in Canada has been pretty resilient to the economic fallout caused by extended lockdowns 
and the subsequent financial crisis that ensued, it would be inaccurate to say that no business has, in some way, not been impacted.
The six strategies outlined 
in the RBC blog post include:
1. Regular monitoring and forecast your cash flow,
2. Digitize your payments,
3. Optimize your payables,
4.Proactively manage 
your receivables,
5. Getting creative with your inventory, and
6. Exploring government assistance, such as the Canada Emergency Business Account (CEBA) and the Canada Emergency Wage Subsidy (CEWS).
“The ability to manage cash flow is fundamental to your company’s financial health. When you add in a global health crisis, and the fallout that has deeply affected businesses around the 
world, your command of working capital becomes 
both critical and considerably more difficult,” says the 
RBC blog post.
“Anytime your business faces a crisis, it’s important to assess the impact of the situation as soon as possible – and as comprehensively as possible – so that you know where you stand. Consider four areas of impact to focus on right now.”
According to RBC, the “best way to get a sense of your future cash” is for your business to run a “sensitivity analysis.”
a) What if you can collect all existing receivables, but you don’t add new revenue in the short-term?
b) What if you can collect all existing receivables and you continue to earn contracted revenue?
c) What if some of your receivables come in late or don’t come in at all?

RBC provided a formula businesses can use to calculate their “burn rate,” or the rate at which a company is losing money in negative cash flow.
“To calculate your burn rate: Gross burn rate = cash / monthly operating expenses (if not currently operating). Net burn rate = cash / monthly operating losses (if operating).”
A blog post from Deloitte gives a good perspective on what businesses can do in times of uncertainty but also gives a dose of reality in terms of the yet unknown long-term effects related to the shutdowns.
“The focus of most businesses is now on protecting employees, understanding the risks to their business, and managing the supply chain disruptions caused by the efforts to contain the spread of COVID-19,” says the Deloitte blog post.
“However, one thing is certain: this event will have global economic and financial ramifications that will be felt throughout global supply chains, from raw materials to finished products.”
The Canadian Federal government has rolled out programs that are designed to help businesses in these uncertain times.
Our AWMAC regional chapters have been 
steadily providing information related to 
the Canada Emergency Wage Subsidy (CEWS) to their membership.
Also, AWMAC National has a comprehensive page dedicated to COVID-19 resources, at www.awmac.com/resources/covid-19. Here you will find information related to mental health, business help links, and resource links to COVID-19 resources for each province and territory in Canada.
Lastly, it is important to remember mental health during these uncertain times. The National Canadian Mental Health Association (CMHA) recently warned in a news release that more Canadians had suicidal thoughts during the pandemic than 
in normal times.
Despite the warnings, it is important to note that help is available if you experience COVID-19 related mental health stress, so if you are feeling strained, please ensure you seek immediate help.

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