How to Manage Cash Flow During Uncertain Times
The pandemic has caused widespread panic and the war between Russia and Ukraine is throwing the world into further uncertainty. Both will have far-reaching consequences for years to come, which is why it's vital that small business owners take charge of their cash flow now.
Cash flow is the lifeblood of any business. When cash flow is positive, the business thrives. When it's negative for a prolonged period of time, the business struggles or may even fail. In this uncertain geopolitical climate, it's more important than ever for business owners to manage their cash flow effectively. Let's examine how to do just that.
Why Cash Flow Matters
Small business owners need to be acutely aware of their cash flow situation at all times.
Cash flow is not simply a matter of accounting; it's a measure of how healthy your business is. In good times, a positive cash flow means you have the resources to invest in your company and grow it. In bad times, a negative cash flow may mean you will struggle to cover your expenses.
Your cash flow is also a key indicator of your company's financial health. A positive cash flow means you're making money and a negative cash flow means you're losing money. This can be due to several factors, including slow sales, high overhead costs, or paying too much for inventory.
It's also important to remember that a positive cash flow doesn't always mean you're making money. It simply means you have more cash coming in than going out.
Likewise, a negative cash flow doesn't mean you're losing money. It could simply mean your expenses are greater than your revenue.
Now that we've established that, let's dive into how you can better manage your cash flow during periods of uncertainty.
#1 - Put Financing in Place BEFORE You Need It
It's always a good idea to have financing in place BEFORE you need it. This means having a line of credit or loan available so you can cover your expenses in case business slows down or you experience a negative cash flow period.
This is especially important during uncertain times when the future is unpredictable. You don't want to be forced to take out a high-interest loan or use your credit cards to cover expenses. If you have financing in place, you'll be able to weather the storm without putting yourself in debt.
There are several types of financing available, so business owners should research their options and find one that best suits their needs. Ask your accountant if they can help you to find a loan or line of credit that meets your specific needs.
#2 - Shift Inventory and Supplies
One way to conserve cash is to shift your inventory and supplies. This means selling products that are slow moving or discontinuing products that are no longer profitable. It also means buying supplies in bulk when they're on sale so you can get a better price.
The key is to be proactive and make these changes before you're forced to do so. This will help you avoid any major disruptions in your business operations.
#3 - Reduce Overhead Costs Now
Another way to conserve cash is to reduce your overhead costs. This means cutting back on expenses that are not essential to your business operations. For example, you may want to reduce advertising spend, travel expenses, or office rental costs.
Now is the time to take a close look at your budget and see where you can cut back. Even small reductions in overhead can make a big difference in your cash flow.
#4 - Streamline and Automate Processes
You can also conserve cash by streamlining your processes and automating where possible. This means eliminating any unnecessary steps in your process and automating time-consuming manual tasks. For example, you may want to automate your invoicing or use software to manage your inventory.
Streamlining your processes will help you to save time and money whilst increasing productivity.
Final Thoughts
With uncertain times ahead, it's more important than ever for business owners to manage their cash flow wisely. By taking the steps listed above, you can conserve cash and ensure your business is prepared for whatever the future may hold.