Cash flow management tips to keep your business fighting fit
Effective cash flow management has never been more important, with the current challenges and uncertainty facing businesses hitting cash flow hard.
Businesses are trying to do their best to protect the health and wellbeing of their staff, clients and the general public while balancing the fact that they need money to pay their rent, salaries, suppliers or purchase stock.
And, as things develop, the level of severity is likely to increase over the next few weeks and months.
So, to help keep your business fighting fit through these uncertain times, here are 7 important cash flow management tips.
1. Update your cash flow forecasts and budgets
Having a plan, even when it’s based on guesswork, can help you prepare for potential cash flow issues. Therefore, having an up-to-date cash flow forecast and budget is essential right now.
Most of this task involves predicting your upcoming incomings and outgoings rather than relying on actual figures.
This can be a tricky task for some businesses, especially as we enter uncharted territory.
The key is to research and prepare for any factors which may impact your business over the coming weeks and months.
A PESTLE analysis (considering political, economic, social, technological, legal and environmental factors) may highlight any issues to come.
If possible, it’s also a good idea to look at the forecasts and plans of any companies in your supply chain that could directly affect your cash flow, whether that’s clients, suppliers or partners.
Whilst you can’t predict exactly what will happen in the coming months, being realistic and forecasting based on potential issues will give you the best possible chance of success in these uncertain times.
2. Analyse and prioritise expenses
All businesses have essential expenses that need to be paid for regularly, such as payroll, bills and taxes, but they also have non-essential costs such as certain supplies and equipment that aren’t necessary for business success. It’s important to identify the two within your business.
Once you have done this you can then prioritise the non-essential expenses in order of importance.
This will ensure the expenses that are most critical to your business success come first and the others can be put aside until the situation improves.
Knowing the difference between what your business can and can’t live without can be the difference between success and failure when money is stretched.
3. Implement an efficient credit control strategy
Late payment is one of the many factors which can make maintaining a healthy cash flow difficult. Without money coming in on time you may struggle to make your own payments.
And, given the current situation, it’s likely that some companies will choose to withhold payment to suppliers beyond the dates their invoices fall due in a bid to protect their own cash flow.
Plus, with staff off sick, self-isolating or working remotely, it may be more difficult to reach those responsible for paying invoices.
This is likely to have a knock-on effect down the supply chain and could create significant cash flow challenges for many businesses.
Therefore, it’s more important than ever to have an efficient credit management strategy in place to limit the impact that it can have on your cash flow.
Our sister company Hilton-Baird Collection Services recently shared six steps to reduce the risks of late payment in these uncertain times.
These included: contacting overdue accounts immediately; making courtesy calls sooner rather than later; considering who you’re selling to; and acting quickly when payment isn’t forthcoming.
4. Secure funding
For many businesses access to funding is going to be critical to survival in the coming months.
The good news is that support is out there.
The government has launched a new Coronavirus Business Interruption Loan Scheme to help businesses access the cash flow support they may urgently require to overcome the unprecedented challenges presented by COVID-19.
Plus, many lenders and banks are announcing their own measures in a bid to provide the additional support businesses will need.
However, with so many options to choose from, and the current fast-changing environment, finding the most suitable facility for your needs can be challenging.
A good commercial finance broker can help with this process.
Our team are keeping their fingers on the pulse with evolving underwriting criteria and facilities to ensure we remain best placed to deliver our usual high standard of service to businesses.
We aim to make the process as straightforward and quick as possible for businesses searching for new funding, while delivering the right fit in terms of the amount, level of service and cost.
5. Make cash flow a company-wide priority
It’s important to communicate the importance of cash flow management and your strategy for achieving this to your employees.
This ensures that the whole business pulls in the same direction and keeps cash flow at the forefront of their minds.
For example, you could budget by department so that each section of your business has responsibility for their spending.
Also, it could be beneficial to incentivise your employees for meeting budget goals so that they have the necessary motivation to stay on track.
6. Be flexible
Flexibility and the willingness to adapt are going to be key to protecting revenue streams as protective measures continue to restrict what businesses can and can’t do.
If your shop, bar or restaurant has been forced to close, could you operate a local delivery service instead?
If you deliver training, classes or workshops, are you able to deliver these online?
Do you have expertise that you could collate into a webinar or download for people to purchase?
Take a look at your business and its core services or products. What can you do to adapt in order to continue supporting your clients through the coming months.
Whilst the current situation is presenting many challenges, in many cases it’s also giving businesses the opportunity to refocus, adapt and be creative.
7. Don’t delay
Ultimately, all businesses are different and will approach their cash flow management in slightly different ways.
But the most important thing to remember is that a healthy cash flow is vital for business success.
So, don’t ignore it.
Take the steps now to ensure that your business spending, budgeting and cash flow projections are all in the best shape possible to allow you to achieve your goals.
If you are likely to require funding to provide additional cash in the coming weeks or months, we would urge you to act promptly.
Although turnaround times in the industry are currently fast, given demand is rising we expect the decision-making process and therefore the availability of cash to soon take longer than usual.
If you would like to discuss any funding requirements or cash flow challenges you may have at this extraordinary time, please call our team on 0800 9774833 or request a call back.