How to Manage Lost Business Income During Covid-19

The novel virus is as medically unprecedented as it is financially. Prior to 2020, there has never been a time when almost all of the businesses as well as companies had to monitor their liquidity and determine their short-term futures in such a crucial manner. 

The ongoing global pandemic has badly hampered the revenue and trade of various businesses and companies worldwide. No matter how big or small, most of these businesses are now constantly experiencing negative operating cash flows.

Indeed, the key to a business’s survival is the way liquidity problems are addressed in the midst of every crisis. 

Other than making a mitigation plan and a recovery team, what are some of the pivotal ways of managing business income loss actively? 

Predict Cash Flow 

Establishing a cash flow predicting procedure is one of the first few crucial steps to take amid this pandemic. It assists in making a business’s future financial position more robust based on the business’s currently anticipated expenditures and receivables. 

A cash flow prediction assists a business in improving working capital, preventing funding issues, meeting financial obligations, and managing liquidity. With the help of this, a business can gain the ability to make informed decisions more efficiently and effectively whenever a liquidity crunch takes place. 

Start out by producing a thirteen-week or short-term cash flow prediction. A thirteen-week prediction is required to establish any quarterly receipts or payments that could be covered in a few parts of other periods. A weekly forecast requires the optimal level of granularity. 

On the contrary, a monthly prediction doesn’t offer adequate information to diagnose low cash points, not to mention an adequate time period to provide a business’s management in taking appropriate actions. This thirteen-week prediction must be stress-tested, expecting worst-case scenarios. Every single fixed and variable expense must be checked in detail to avoid any financial surprises. 

Start using a cash-flow tool and make model scenarios to make sure the downside risks are lessened. 

Predict Cash Flow

Increase Liquidity

When your profit vanishes, liquidity is right at its core. After setting up a cash flow prediction procedure, a business would have a much better albeit abstract idea of its cash-flow strain intensity. From there, the next thing businesses would like to do is pouncing on every single opportunity that accelerates cash inflow. 

Have a look at some of the usual tangible actions that can help to optimize liquidity when a business experiences income loss: 

  • Present cash reductions to all those customers who make repayments swiftly; 
  • Use cost rationalization; 
  • Apply second mortgage, business loan, fast cash loan, or extended credit;
  • File for business interruption claims; 
  • Reschedule payment span for all the remaining expenses. 

With that being said, anticipating that this novel virus will stay uncontrolled and the business will not be making profitable money anymore, it’d be perfect if all businesses possess a smooth liquidity runway.

Increase Liquidity

Appropriately Document Liabilities

Other than optimizing a business’s liquidity, businesses should also consider making an efficient record-keeping system for the weeks and months ahead since it is still unknown when the pandemic will come to an end. 

According to some experts, a business must obey the following when documenting liabilities in a clear and concise way:

  1. Determine a general ledger account to keep a record of incremental expenses. In the business’s expenses accounting system, gather all losses and costs related to COVID-19 in a different account number. 
  2. List the business’s operating baseline. And in order to do that, conduct a 2-3 year review of how your business ran pre, during, and post-coronavirus. 

Solid financial supporting documentation can significantly enhance the chances of getting aid from the local small business administration (SBA) and even the federal government. 

Appropriately Document Liabilities

Business Interruption Claim

There is a requirement for reviewing policy thoroughly for all those businesses that possess a business interruption policy. Always remember what is included in the coverage, such as the policy’s limitations and the type of losses covered. If there is a perplexing structure and confusing language in the policy, clarify them through an attorney or an insurance company. 

In addition to that, a business interruption claim is more likely to be granted in case a business provides excellent financial supporting documentation. It must show how the coronavirus hampered your business. Moreover, it must also include incremental expenses incurred, customer attrition rates, and income loss as described by the insurance policy. 

Now that the majority of the companies are at the very edge of financial distress because of the global pandemic, this is the most suitable time for submitting a business interruption claim. But, keep in mind that prior to filing a business interruption claim for losses incurred during the pandemic, try to comprehend why most insurance companies think these days differently.

Insurance Companies’ Perspective on the Global Pandemic

Business Income
  1. Some of the insurance companies firmly believe that the ongoing global pandemic is a “Force Majeure” event. This legal defense necessarily frees a party, in this case, the insurance company from fulfilling its duties because of unusual circumstances that are not in control of any of the involved parties. These insurance companies claim that this massive virus outbreak is one of those unfortunate events. 
  1. According to the majority of the policies, coverage is offered if and only if a policyholder or a business goes through a loss of income caused by damage to the covered property or a direct physical loss. As stated in the insurance companies’ contracts, the coronavirus is neither damaging to the covered property or a physical loss. 
  2. Coverage for loss of income is not offered for the government’s actions that are specifically developed to prevent the spread of the deadly virus. Particularly, it is not offered to policyholders because of economic slowdown or market conditions related to the massive virus outbreak. 
  1. The primary reason why this pandemic is uninsured is that it is not insurable in the first place. The majority of the insurance policies offer coverage that takes care of business income losses caused by a natural disaster. Since this virus isn’t a natural event, it is uninsurable.

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