How to manage business cash flow in uncertain times: Spenda

In this piece, Spenda Managing Director Adrian Floate shares how businesses can manage cash flow amid an uncertain economy. 

According to KPMG’s recent CEO survey, 86 per cent of executives think there will be a recession in the next year. Despite this belief, over half (60 per cent) think it will be mild and short, and 76 per cent have a plan to deal with the impacts. In contrast, some economists predict a “stagflationary crisis”, which involves high unemployment, slow economic growth, and high inflation.

Positive cash flow is critical for businesses, and without it, a company can’t cover its expenses, make investments in the future and grow. Many companies may have seemingly healthy balance sheets and profit and loss statements with impressive net income, but if operating cash flow is tight, a company won’t survive.

While conflicting forecasts are normal, the economic uncertainty should push more business owners to look at ways they can optimise their cash flow to weather the next 12 months.

Planning ahead: How to strengthen your cash flow

Creating a cash flow forecast provides you with the data required to identify where changes to income and expenses can strengthen your cash flow. Here’s other things to consider:

• Put profit first: Prioritising profit and using only what’s available to cover your expenses can provide you with a guide on how drastically you could reduce your expenses. This can turn a business from a “cash-eating monster to a money-making machine”.
• Reassess your inventory: Identify products that have high and low demand and develop a plan to move your ageing stock through sales or bonus offers and focus your sales and marketing efforts on scaling revenue for your in-demand products.
• Take a ruthless look at your costs: Every business has costs associated with it, from day-to-day operating expenses to long-term liabilities. It’s important to analyse your company’s expenses to identify if there are any that can be eliminated, renegotiated, or adjusted to boost cash flow.
• Deliver more value: Just like creating offers to move ageing stock will boost your cash flow, putting new offers out that deliver great value will help to strengthen your cash flow too. Think of how your business may be able to create offers that incentivise customers to pay upfront.
• Invest in smart systems: Invest in smart cost-saving systems that automate tasks and take the burden out of chasing late payments, sending quotes and invoices, and collecting payments. Two of the key systems you should have in place include accounts receivable and accounts payable automation.
• Review loan covenants and proactively negotiate with financiers: If you have long-term loans and liabilities, ensure you proactively manage your collateral requirements and repayments. In an environment with rising interest rates and inflation, a bank may require more collateral from your business to maintain its current credit facilities.
• Find a trusted alternative finance partner: Securing finance before you need it is important, particularly when the economy may tighten, and it becomes more difficult to secure funding. For many SMEs, on-demand lending solutions from their FinTech provider – such as invoice and supplier finance, and buyer finance – can provide the capital needed to fulfil orders and deliver projects while keeping cash flow stable.

Proactively manage your cash flow to survive and thrive

Understanding your working capital requirements, forecasting your cash flow, and taking proactive steps to boost your cash flow and minimise your expenses, will strengthen your business’s finances, even in an economic downturn.

Download this guide to learn more on how to better manage your cash flow in an uncertain economy and set your business up to thrive in 2023 and beyond.