Sadly, even profitable businesses can go broke if they do not effectively manage their cashflow during tough times – and it’s affecting many small businesses right now.
Not surprisingly then, cashflow is one of the biggest challenges currently facing business owners, with some 92% reporting that they frequently experience stress due to cashflow concerns. If you’re like many of the business owners we’ve talked to recently, you may have had to reduce the scope of your operations, source additional funding, take a pay cut, or even make long-standing staff redundant.
However, it’s not all doom and gloom. The good news is that while cashflow may be the first to take a hit when times are tough, the actual key to surviving is to implement strategic cashflow management policies and systems;
Here’s our top 12 strategies for you to consider;
- Set goal-oriented budgets and proactively manage them. Profit and loss budgets are still very important but right now your focus should be on developing your cashflow budget, which will allow you to plan for your cash requirements and shortfalls in advance.
- Focus on increasing sales and income – a feat that, even during tough times, is possible. Be proactive, provide real value to your customers and identify creative ways to increase your retention rate, generate leads, and increase conversion.
- Avoid easy tactics like discounting, which can be dangerous to business profitability – even a 10% discount can result in your business having to increase sales by 100% to achieve the same gross profit pre-discount.
- Set your terms of trade at the outset, terms should include when you expect to be paid and your ability to add interest.
- Stick to your payment terms. Don’t let your customers pay you late.
- Use a contracted debt collector on slow payers.
- Set aside a percentage of all cash you receive into a separate bank account to cover your tax payments.
- Manage your work in progress by billing regularly, reducing the number of jobs you have on at one time.
- Only hold enough stock to cover the time it takes between the sale of an item and when you get delivery of the same item.
- Measure how long in days on average it is taking to sell each stock item and reduce obsolete stock. You’re better off to convert that slow moving or obsolete stock back into cash.
- Finance the cost of fixed asset purchases using over terms similar to how long the asset will last before it needs replacing.
- Set a budget for income and expenses and stick to it. If a new cost is not in your budget then find a saving somewhere else.