How to Manage your Business' Cash Flow when Times are Tough
Many businesses fail because of inadequate cash flow management. When times are tough, efficient cash flow can mean the difference between pulling through and going under.
In tough times, businesses often have to contend with the double-whammy of struggling to meet all of their financial commitments while also having customers who are finding it difficult to pay them.
However, there are a number of ways that businesses can improve their cash flow, even during worrying times, which can ensure the business survives.
Getting a handle on your cash flow situation
It’s really important to have a good understanding of your short- and long-term cash flow. Knowing exactly how much cash you have available right now, how much you expect to receive and how much will be going out the door will make meeting your commitments much more manageable.
On a daily basis, you need to check your cash balances — it’s much easier to plan for shortfalls when you see them coming. If you don’t already have one, set up a three-month cash flow forecast. This will help you to make effective short-term decisions with regards to your inventory, payables and receivables. You can then work on receiving money owed to you faster and paying money out slower.
Tips to better manage receivables
Make it a priority to collect all outstanding debts. Arrange meetings with any customers who are consistent late-payers and discuss ways you can work together to avoid the situation from happening in the future. Make a priority of those customers that owe the most and suggest a payment plan as one way to consistently get money coming in from them.
Think about giving discounts in exchange for faster or even immediate payment. Being able to accept digital payment can considerably speed up your receivables process. Offering payment by credit and debit card, e-transfers or mobile payments will bring cash into your business much faster.
Tips for managing money going out
Employees can often be among your business’s largest expenses. If your workload has been reduced, consider ways to avoid laying people off while still making cost cuts. Explain the situation to your staff and offer a temporary cut in work hours, a payment deferral or offer them some equity in the company in place of cash.
Set a good example and tighten your own belt. By reducing personal withdrawals from the business you’ll not only improve your cash flow, you’ll also show your staff that you’re in this together.
Talk to your suppliers to try and negotiate better terms, speaking first to those suppliers that are the most crucial to your business’s success. Ask about lengthier payment periods — extending them to 45 days could make a huge difference to your cash flow. Ask for discounts for prompter payment or have them consider setting up payment plans for large outstanding amounts. Try and make payments digitally as much as possible. This gives you more control of exactly when the money leaves your account, so it doesn’t need to sit there for so long.
Keep a tight rein on inventory
In tough times it’s even more essential to know exactly what you have in stock, so carry out more regular stock counts. This will allow you to reorder only what you need, before it runs out. You’ll also be able to reduce stock levels as much as possible while still allowing for the smooth running of your business. Get rid of any slow-moving stock and replace it with stock that has a quick turnover.