One thing the uncertainty of the past year has taught us is that events beyond our control can have a disruptive and sometimes catastrophic affect on our business strategy. The global pandemic and subsequent economic recession; Brexit and subsequent trade difficulties; political elections and social unrest worldwide; climate change – are all putting enormous strain on businesses.

Even in ‘normal’ times, cash flow is one of the biggest challenges and threats to business success. Every organisation experiences periods where cash flow is extremely tight and they struggle to meet their monthly overheads. Keeping the finances under control and properly planned can ensure business survival and promote growth, but how is that possible in such unpredictable times?

Cash in

It is important to understand where the company’s core sources of cash come from. Core income is obviously from the sales of products or services but also investments, outside funding and loans. A good exercise to better understand the stability of each inward cash flow is to determine how the current business environment affects each customer and income stream. As none of us has a crystal ball to envisage the future, try to categorise each revenue source on a scale of 1 to 5 of steadiness.

Cash out

Next, it’s good to analyse the number and type of different cash outlays, which can be significantly higher than the cash coming into the business. Some costs are fixed by law or via contract and are predictable, whilst others are more changeable. The variable costs are more likely to be affected in uncertain times but there are occasional opportunities to adjust or defer some of the fixed outgoings, such as lower interest rates, or payment holidays.

Cash flow solutions

Once you have analysed your forecasted cash flows in and out, the next step is to anticipate where future problems are likely to occur and pre-empt them so that you’re not left in crisis mode. Here are some options to consider:

  1. Delay or stop expenditure – some cash outlays may not be essential for the short or medium term, can these be deferred or cancelled?
  2. Government assistance – loans and funding can be a good option to get you out of a cash flow hole, although of course, they will need to be repaid.
  3. Negotiate supplier and customer terms – with demand falling or rising, now could be the time to renegotiate more favourable prices and terms.
  4. Payroll costs – most payroll costs are fixed but consider whether new recruitment can be delayed and make use of furlough schemes to keep costs to the minimum.
  5. Market conditions – with interest rates low, this may be a good time to refinance debt and secure new lines of credit.
  6. Product inventory – are you holding stock that is expensive and unnecessary? Following a stock take, assess which products could be sold more quickly.
  7. Sale of assets – selling certain investments or assets could generate cash to boost the bottom line.

If you’re having trouble keeping on top of your cash flow issues, the CRM 8 Step Business Improvement Programme could be the perfect framework for you to take control. The programme makes running a business clearer and more systemised by setting out transparent goals and focusing on the numbers to bring you back on track.

To find out more about the 8 Step Business Improvement Programme, check out the CRM website, or call the experts on 01865 379272.

Sage Accountant Partner Logoiris kashflowFreeagent