Cash flow management is an important part of running any business. But it is especially important for small to medium size businesses where the goal is to achieve steady growth and avoid any losses that may have long-term effects.
So, you’ve survived a turbulent two years. Now, why not use the momentum gained from pushing through to drive your business forwards? CBHC Financial Director, Ian Harris, has written a quick, 10 step guide to help business owners and entrepreneurs to navigate their finances in the face of Covid-19 disruptions. In truth, it’s advice for every business owner to use, all the time.
Reviewing your cash flow management in 10 steps
What do you have to spare?
Assess any surplus cash your business currently has available.
Covering initial costs
Assess how much revenue you need to generate to be able to meet your current overhead commitments. This includes staff wages or salaries over the next few weeks and months.
Stock flow
If you carry stock for sale, assess how quickly you can turn this stock into cash and what total revenue this will generate. What is the minimum amount of stock you will need to replenish in order to meet a reduced demand?
What’s the season?
Ask yourself, where am I in my seasonal trading cycle? Is this normally a period of profit or loss making?
What do I owe?
Review your business’ amounts owed to suppliers and assess whether you can extend the payment period without adversely affecting your trade.
What am I owed?
Review your business’ aged receivables and assess whether your customers are regularly exceeding their payment terms.
Sensible spending
Review your planned capital expenditure and assess whether any of this can be deferred to a later date.
Remember HMRC
Review what you owe to HMRC and assess whether you can meet these commitments.
Ask your bank
Review your company bank borrowings to assess whether any of the lending could be re-structured to provide additional short term funds.
Forecasting
Prepare short term forecasts to assess whether you are likely to have sufficient cash based on a normal level of trade and based on a reduced level of trade.
Actions to take in an economic downturn
Unfortunately, we are still in the economic downturn caused by the pandemic. How can you safeguard your business for an impending recession?
Communicate with your key suppliers and seek improved payment terms.
Communicate with HMRC and explain issues and seek to agree on payment plans over a period of time.
Where capital expenditure is necessary, seek to fund with medium-term loans rather than paying cash.
Identify products and services which can be bought and sold quickly rather than having to carry stock for the long-term.
Chase aged receivables where customers have exceeded their limits.
Prepare accurate financial information to support bank or alternative short-term borrowing.
Stay Calm, keep focused and seek assistance from your accountants and advisors.
Automation – maximising potential
Lastly, embracing technology is one of the most effective ways to stabilise and manage your cash flow. Many other practices and systems have been improved by automation and you should follow suit with your finances.
When it comes to finances, tools such as Xero can aid better invoice management, faster payments and more accurate figures. It ensures consistency, speed and cuts out human error. What’s more, it allow employees to use their skills in other areas, improving productivity and job satisfaction. As we like to say at CBHC, it’s about working smarter not harder. Talk to our team. We can provide Xero training and guidance so you don’t miss a trick. Automated systems help us to collaborate and be greater than the sum of our parts.
