The COVID-19 virus is disrupting industries and businesses in unprecedented fashion. Due to shelter-in-place orders, business shutdowns, travel restrictions, and general fear to leave the house, the consumer packaged goods (CPG) industry is witnessing the quickest evolution in shopping behavior ever.
It’s difficult for experts (or even the consumers themselves) to predict exactly what’s going to fly off the digital and retail shelves over the next few months. However, even products currently in hot demand are causing cash flow issues for responding suppliers.
While US CPG sales soared in late March, not all departments and categories are seeing the same spikes. Sales of consumable products in-store rose, while non-consumable product sales fell. Online, the exact opposite happened. Delivery, manufacturing, selling, and shopping are all out of whack, and CPG brands are feeling the impact.
Cash flow crises arise from time to time. If the pandemic is giving you financial issues, you’re not alone. Fortunately, there’s a way out. Below we’ll show you how to reduce your expenses and boost your revenue to get your cash flow back on track.
Understand Your Financial Position
Before you start making budget cuts, introducing new marketing tactics, and applying for small business loans, you need to get a feel for where your business stands.
First, pull your three essential financial statements:
- Cash flow statement
- Profit and loss statement
- Balance sheet
Look over these numbers to get a feel for how you’ve historically done monthly, quarterly, and annually. Don’t just look at profit, though—zero in on the specific revenue and COGS (cost of goods sold) metrics.
With your historical statements nearby, generate the reports for your current financial situation. Compare the two side-by-side to find any red flags or discrepancies. If your cash flow is hurting, your reports may indicate your revenue isn’t to blame—it’s your COGS. Or vice versa.
A teeny-tiny change to COGS can make a huge impact on your CPG business’s bottom line. CPG items are usually relatively low-cost goods, which means suppliers must become lean scaling machines in order to drive down production costs and boost the ROI of each sale.
Do financial projections as well—for multiple scenarios. And do so, regularly. With the uncertainty that has accompanied coronavirus, you’ll need to be prepared for just about any situation. It’s tough to plan these days, but forecasting is the most effective method to help you “predict” the future. Keep tabs on the news, policy changes, industry trends, and the general economic outlook—these all will impact your finances, and in turn, the trajectory of your business.
To get your cash flow back on track, you’ll either have to reduce your expenses or boost your sales—easier said than done. Next, let’s take a look at a few ways you can cut costs, then we’ll cover new revenue opportunities.
Reducing expenses is usually a lot easier than boosting revenue. You’re in complete control (mostly) of your expenses, while your sales are impacted by the market, supply and demand, and even COVID-19 regulations.
Cut non-essential spending
Only spend money on expenses tied to sales. If you’re not in the office due to coronavirus, this is a good time to pause your business’s internet package and the breakroom cable subscription. Look at your cash flow statement and ask which transactions are nice-to-haves and which are need-to-haves. If it’s only a nice-to-have, cut it.
Reduce operating expenses
Minimizing your operating expenses will increase the ROI of each sale. Here are a few areas to consider:
- Warehouse rent: Is excess inventory collecting dust in an expensive warehouse? Consider offering discounts and promotions to make cash now, clear up inventory, and reduce overhead. Take it one step further, and evaluate your warehousing solution. Are you utilizing the most cost-effective method for your logistical needs, or do you need to rethink your strategy?
- Inventory: Assess your inventory and your product offering. Poor inventory management could be eating away at your profit margins. Not only is precious cash tied up in slow-moving stock; you’re also paying for things like utilities, storage, and shelf space. Consider liquidating deadstock, and capitalizing on your best-performing products.
- Transportation: Can you produce, buy, or sell locally to cut back on transportation expenses?
- Packaging: Ditch the fancy packaging for now and keep it barebones. You’ll save cents on every purchase and can get back to the frill once this pandemic passes.
- Shipping: Reduce your shipping convenience (even Prime is taking weeks to ship some items—consumers get it). Consider changing your free 2-day shipping to free ground shipping or free shipping for orders over $100.
- Fulfillment: Consider 3PL versus self-fulfillment to see which will help you save more money. Make sure you factor in your own cost of labor to avoid the hidden costs of doing everything yourself.
- Distribution: How well are you managing the current demand for your product? Is it profitable for you to attempt to manage every aspect of the distribution process on your own? Does the manufacturing, storage, or marketing of your product take up to much of your schedule? Figure out if your CPG brand could benefit from working with a distributor.
Negotiate with your suppliers
Talk terms with your suppliers. Ask to see if there are any promotions or discounts your business can take advantage of if you pay early. If you’re waiting on COVID-19 funding (more on that later), see if your supplier is willing to defer your payments. Your suppliers rely on your business to exist, so they’ll likely be willing to work with you in light of this global disaster.
Reach out to retailers
On the flip side, make sure you’ve touched base with your retail partners. First, gauge how the pandemic has impacted their business. Will they be reducing current orders or future buys? Will they be late on paying outstanding invoices? The answers to these questions will inform your cash inflows over the next coming months. You also can also offer early payment discounts to encourage faster payment. That said, retailers are likely dealing with similar coronavirus-related issues. But, it never hurts to ask.
Contact credit card companies
Many banks and lenders are providing relief by offering everything from deferred payments to waived fees. Contact those you owe money to see if you can renegotiate your interest rate and payment terms. If you’ve been a good client, you may be able to score a higher credit limit, lower rates, and better terms.
Automate and outsource
Time is money, so the more trivial tasks you can get off your to-do list, the more money you’ll save in the long run. Look to automate or outsource your low-dollar administrative tasks so you can focus on the high-dollar essentials. To find your cost savings, evaluate how much your time is worth, and then estimate the hourly cost of a task. If that task’s cost is less than your time’s worth, look for ways to automate or outsource it.
Now that you’ve cut down your expenses, it’s time to look for ways to boost your revenue. There are a lot of small ways that companies can win big. Here are a few coronavirus-friendly tactics you can try:
Test new sales channels
If you haven’t before, now’s the perfect time to experiment with digital tactics. Need convincing? Over the last year, online channels contributed to nearly 70% of overall CPG growth. Explore marketing (or even selling) goods on your own site, or consider joining an online marketplace (they’re basically digital retail spaces):
- Amazon (and some helpful tips to get you started!)
- Walmart Marketplace (yes, it’s a thing)
With your products listed online, test how different sales channels work for your product:
- Social selling (exhibit A: Instagram)
- Google display ads
- Email marketing
- Affiliate marketing
- Content marketing
- Virtual CPG events
Expand to (D2C) ecommerce
Cut out the middleman and sell your CPG products direct-to-consumer (D2C). With most retail locations closed, this is a perfect time to compete in the digital world. Selling D2C has a few advantages:
- Sell your products at wholesale, making your items the most competitively priced
- Sell your products at retail price and reap a higher ROI on every sale
- Offer subscriptions plan to provide incentives and recurring purchases
- Build brand loyalty directly with your product rather than sharing with a retailer
- Go omnichannel (physical store, e-tailers, website) to give your customers access to your products anywhere
Differentiate yourself from the crowd
Your CPG products likely go head-to-head with a number of other brands. If you’re going to battle it out online, you’ll need a competitive advantage that goes beyond retail relationships. Your product will need to stand apart from the rest in one way or another. Here are a few ways to differentiate yourself:
- Price: Revisit your pricing strategy. Know your numbers, research your desired market, and analyze your competitors.
- Cause: TOMs shoes stand out for their model of buy-one-give-one. The actual shoe isn’t all that special—it’s the purpose-led cause that differentiates them from other hipster footwear. Things like sustainability and transparency resonate with customers, and they’re willing to pay more for it. Bonus: get certified.
- Audience: Coca-Cola and Pepsi seemingly cater to the same audience, but MTN Dew and Dr. Pepper—not a chance. They differentiate themselves with bold claims, colors, and branding to target a specific niche. Riches are in the niches.
Seek Financial Assistance
To help businesses get back on their feet, the government’s providing massive financial assistance primarily through two Small Business Administration (SBA) loan programs: PPP and EIDL.
Paycheck Protection Program (PPP): 100% forgivable 7(a) loans equal to 250% of your average monthly payroll expenses. As long as you maintain your headcount, the loan proceeds used towards payroll-related expenses and certain other operating expenses (mortgage interest, rent and utility payments) will be forgiven.
There are other short-term financing options that can help smooth over cash flow gaps available, too.
How can Funding Circle help?
If you want to learn more or are ready to get started, check out Funding Circle – one of the few (non-depository) online lenders approved by the SBA to issue PPP loans.
Funding Circle will work with you each step of the way, assigning you a dedicated account manager who will contact you as soon as possible to complete your application (and supporting documentation) and answer any questions you may have.
Visit Funding Circle to learn more and apply.
Conclusion: Lean Into Local
Both retailers and suppliers build goodwill and business when they invest in the local economy, and consumers feel pride in supporting people and jobs in their community. Going local isn’t just a good branding tactic—it has logistical advantages that can’t be beaten.
Lean into local — you, your retail partners, your consumers, and the local economy will be better for it.
About the Author:
Samantha Novick is a senior editor at Funding Circle, specializing in small business financing.
Funding Circle, is a global small business loans platform, offering Small Business Administration 7(a) loans as an affordable solution to access the capital your CPG business needs. Funding Circle works with Preferred SBA Lenders offering in–house approvals and accelerated processing gives you fast answers and even faster closings.
Since launching in 2010, more than 81,000 small businesses have borrowed $11.7 billion in Funding Circle’s four geographies — the UK, US, Germany, and the Netherlands.
As a founding member of the Responsible Business Lending Coalition and signatory to the Small Business Borrower Bill of Rights, Funding Circle is committed to providing transparent financing and access to responsible, transparent credit for small businesses that have historically been under-served by traditional lenders. For more information, visit www.fundingcircle.com.