What’s your business to do?

The pandemic seems to be receding in this part of the world, but COVID is still wreaking havoc on businesses and supply chains across Canada and around the world. 

Here’s a common scenario we are seeing amongst some of our clients these days: A business places its regular order from one of its suppliers, but this time the price of shipping is unexpectedly double because the foreign port the supplies are shipped from is packing far fewer containers than normal due to a COVID outbreak. 

Here’s another common scenario: A business is informed from one of their regular suppliers that wholesale costs are rising dramatically and that their next order will be triple the price. 

There’s no doubt about it, as the world edges towards economic recovery it has also gone weird. How is a business supposed to effectively manage its finances and cash flow with so many unknowns swirling around? The answer is with open and frequent communication with your bank, suppliers and even customers. Just like when it comes to receiving an unwanted letter from the CRA, ignoring this problem in hopes that it will go away will only make the challenge worse. Communication is the most important thing. 

Talk to your lender…soon and often

It’s not always easy to maintain a relationship with the bank, but it’s extremely important to do so—after all, your bank is usually where you get credit. If wholesale or shipping price hikes are creating a cash flow issue or you anticipate that they will in the near future, pick up the phone and call your bank first. Lenders rarely move quickly and don’t take kindly to credit asks that come out of the blue. Negotiate additional credit or new lending terms as early as you can. 

How early? We’re currently working with a client to do just that as they already foresee having a credit issue in August. How did they know in June that they were going to have an issue in August? Because our high-level financial knowledge and guidance helped the owner-manager see what the business would need and when.   

Talk to your suppliers

Maintaining open lines of communication with your suppliers is just as important as maintaining the relationship with your lender. Most suppliers are willing to negotiate contract and payment terms, but not when your cheque is already late. Have these conversations as early as you can—almost as soon as you learn about price changes—because negotiating better terms with a supplier amounts to your business receiving free credit. And that’s a whole lot better than the interest rate that comes with credit from the bank. 

Talk to your customers

This point mainly applies to businesses who have customers that make regular purchases—a contractor who buys lumber from you, for example. (Lumber is one of those products that is selling at sky-high prices right now.) Making your customers aware that because your costs have significantly increased, theirs will as well, gives them a time to adjust their financial planning and secure credit. That simple bit of communication is an easy way to keep your customers happy. 

The reality is that supply costs likely won’t stay this high forever. Neither will shipping costs. But they’re here now. And what is also here is the fact that a consumer boom is looming. That boom is going to put a lot of pressure on inventories. By opening the lines of communication now, you’ll better be able to navigate any unexpected financial ebb and flow.