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In these unprecedented times, many small and medium-sized businesses have reported significant problems with cash flow.
In addition to drawing on Government-backed financial support, there are a number of measures you can take, to manage your cash flow as effectively as possible.
Frequency of staff wages
Some industry sectors traditionally pay their employees weekly or fortnightly but this can have a negative impact on your business cash flow, particularly if your terms of business allow customers 30 days to pay. Regular late payers or clients who are themselves struggling with cash flow, can exacerbate the situation.
Consider turnover issues
Clearly, turnover will be important for your business, but you need to ensure that you do not fall into the trap of ‘over-trading’. Blindly chasing turnover can be risky because of the up-front costs you will inevitably incur. What happens if payments are not received until weeks or even months down the line? How will your cash flow be affected as a result?
No-one wants to turn away business in the current economic climate but you may wish to consider asking for advance payments to cover materials and supplies.
Equipment purchases and capital expenditure
Think carefully about committing to purchase any large pieces of equipment which could take a chunk out of your capital reserves.
If the equipment is necessary to keep your business going, consider a hire purchase agreement or bank loan so that you can offset the cost over a number of months or even years.
Take a good, hard look at your fixed overheads. Now might be the time to outsource your payroll and HR services to minimise the fixed costs of having in-house staff.
Freeing up funds in this way leads to leaner working practises so that your business can remain flexible with a focus on staying profitable.
Every business suffers the pain of late and slow paying customers. The Coronavirus crisis means that many more suppliers may default on their payments, leading to a knock-on effect for your business cash flow.
Now is the time to ensure that your credit control function is working efficiently. If you don’t have a dedicated in-house facility, you can outsource this business function in the short term to help your business ride the economic storm.
A good credit control system is reliant on your business issuing invoices without delay so that any lapses in adhering to terms of payment can be followed up as soon as they become due.
As a business owner, you will know that balancing the books and ensuring that your cash flow remains healthy, is critical to ensuring your business not only survives but, in the long term, thrives.