Cash Flow in a Crisis – Top 4 Financial Steps In a Recession

Where Are The Opportunities? Right now implementing the right strategies can be VERY effective. Here are the 4 financial steps you MUST be doing in a recession:

Sorting Financials #1: Track It.

The very first thing you must do is track your cash flow. Depending upon your business you will need to be tracking your cash flow hourly, daily, or at least weekly. If you are going to struggle with this get your accountant / financial controller / book keeper to help you.

Money IN. Just like having a sales forecast you need to have a Money / Cash IN forecast. Projecting cash receipts for your cash flow involves recognising when the cash inflows from a sale.

Money OUT. Projecting your cash outflows involves projecting your expenses and other cash outflows over the next days, weeks and months. Projecting your expenses for the next month or six months may seem like a difficult task. You may even feel like you’re guessing when projecting some of your expenses – that’s fine – start somewhere.

Sorting Financials #2: …and the obvious… spend less.

Travel Less. Technology lets you have a ‘face-to-face’ meeting with clients or colleagues without leaving your own office. This can be done over the internet and often next to free.

Cut Communications costs. Making phone calls over the Internet saves on call costs, and you may need to rent fewer phone lines. Broadband costs have plummeted recently, so make sure your package is still competitive.

Shrink your office. Basic low cost IT and your team can be based at home and still have instant access to their e-mail and office-based systems; one of our customers cut its overheads by over 40 per cent by reducing office space.

In fact… Let’s get to the point. Reduce ALL Your Outgoings by At LEAST 10%. Print out your list of expenses and review them – do it tonight. Take it one step at a time – if you save 1% a week every week for ten weeks… a nice 10% reduction in costs for being persistent – and an increase in Margin.

Sorting Financials #3: Change The Way You Do Business

Start Taking Deposits. 15% or more at Order – cover your costs before you move forward. This is called closing the Cash Gap – the difference between when you have to pay your suppliers / wages and get paid by your customer. The best Cash Gaps are the one’s where you get paid BEFORE you pay your suppliers.

Shorten Your Payment Terms. Get the money in as quick as possible

Extend YOUR Supplier Credit. Ask your suppliers for better deals. If you don’t ask you don’t get. You can negotiate better terms now, compared to 2 yrs ago, so renegotiate

Invoice on Time. You’d be amazed how many business owners I meet who don’t get their invoices out on time then complain it takes too long to get paid.

Electronic Invoices. Get invoices out even quicker, without postage charges and paper costs – send invoices by email – and when you contact your customer to confirm the email address… find out the email address to market to also.

Reduce Your Stock. Get rid of the slow moving and low margin. Measure your margins and look to target faster moving but definitely higher margin goods and services

CHASE Debtors. You have to be consistent and have a system that you stick to. Call on the days you say you will and be firm. Set Targets: Monthly and weekly for money in. Have a process with rules and stick to it. Have Court Papers ‘ready to go’ and send them for all accounts that meet the criteria. Use a Debt Collection Agency

Consolidate Any Loans. Not easy right now – but if you can, look to consolidate your loans. Interest rates will be going up – so those charges will be getting bigger if you don’t.

Sorting Financials #4: Have a Budget and Make it Work

I always tell people they need to have a budget that covers more than just expenses. A sales budget for how much you will sell each month is a must. If you are good at spreadsheets then you can build very good cash flow projections, else I’d seriously consider investing in some sort of business management /accounting software that can deliver one set of numbers that everybody in the business uses

Your business budget is nothing more than a set of guidelines for your spending and saving habits. Below, I’ve outlined common problems & solutions to help you realise the benefits.

Accept the learning curve. Living with a budget is an education. So you can learn to adjust a budget as you go. What was once a guess will become a more predictable and precise. For your very first budget start by looking at a previous periods (year /month) actual’s. Be prepared to miss your first budget estimates – just keep improving them week on week. Make your budget reflect the cash movement.

Be conservative. When setting up your budget, it’s a good idea to overstate your expenses (outgoings) and understate your expected revenue (income).

Work flexibly. Sticking to a budget often comes down to being flexible. For instance, if your revenue doesn’t match what you expected – trim your expenses to compensate. If you’re selling more than you anticipated… doesn’t mean increase your expenses… invest in you and your business to grow, and…

Grow a cash reserve. The uncertainty of budgeting – both income and expenses – stands as one of the biggest threats to the survival and success of any business. While trimming expenses as much as possible is always a good idea, it’s also prudent to set aside income whenever possible. If you can afford it, save a portion of every months income… budget for it.

Check your budget at least every week. This is a point that I cannot stress enough. Go over your budget every week – if the cash flow is even tougher – every day. Examine your cash flow to make certain your available funds are sufficient to meet your liabilities. I run my business cash flows daily regardless.

Use your budget as a form of management, not constraint! Setting up and adhering to a solid budget is the best financial teacher there is. But if something truly justifies it – deviate. It’s often impossible to budget for a valuable unbudgeted sales course or trade show to find new contacts.

If you’ve put in the work and created a business budget, follow it! If you don’t, you’ll lose the benefits that you planned for.