What a challenge 2020 has been so far – the understatement of the year, I know! One of the greatest challenges to business during this period has been managing cash-flow. That rollercoaster ride starting with lockdown, through to where we appear to be now, post-lockdown with the first signs of the green shoots of recovery for most businesses.
Government assistance measures have, in the main, been well thought through and most welcome, in particular, the furlough scheme and the various funding initiatives. However, these measures will end shortly, so what should businesses be thinking about now in terms of cash-flow management?
Now that for most of us (hopefully!), we are seeing our activity levels starting to pick up again, what are the working capital needs going to be? This period could in fact provide businesses with their greatest challenge. The scaling up of the need for cash to sustain an increase in activity. Below are some of my thoughts.
- Make sure that you have your costs under control.
- With the furlough scheme, the businesses that we have been working with have certainly closely scrutinised their ongoing payroll costs. These has led to re-focusing of people’s roles and to some tough decisions having to be made.
- Control your overheads. Categorise your overheads into those that are vital to business operations and those that are discretionary or even luxuries. Question the latter and make cuts where appropriate.
- Forecast, forecast, forecast. Try predicting what the future cash looks like to the best of your ability. Cash-flow forecasting can be as complex or as simple as you need it to be. One page or several pages, as long as it tells you what you need to know; with the forecasted level of activity what will the bank balance look like after taking into consideration predicted receipts and payments? A number of commentators talk about a thirteen-week review period. I agree with this, but feel that consideration should also be given to weekly and annual forecasting too. With the information that you have at present, what is your bank balance predicted to be at the end of the week, at the end of three months or even at the end of the year?
- Having considered your forecasted cash-flow requirements, do you have the correct level of funding in place? Time to talk to your bank manager and other financial advisors, who will be able to walk you through this thought process. If needed, it is imperative that the right type of funding is in place in terms of structure and of course pricing! Simply having an overdraft is not always the answer.
- Remember that the Coronavirus Business Interruption Loan Scheme and the Bounce Back Loan Scheme will end on 31 December. If it is right for the business and you meet the criteria, the time to talk to your bank manager is now.
Many business owners have different experiences and thoughts when it comes to cash-flow management, but these are the areas I would urge you to consider now:
- Do you understand your cash cycle? Receipts coming in through to payments made. Are there any areas in this cycle that need to be tweaked in terms of timings? Is the gap too big between the direct costs that you incur to when you get paid?
- Be on top of your credit control. Keep communicating with those businesses that owe you money.
- Question every form of non-essential spend. What cash benefit does this bring to the business?
- Make sure that you undertake some form of cash-flow monitoring and forecasting. Ask for help if you need it.
- Talk to your bank and advisors – maintain and enhance those relationships.
- Communication is the key, internally and externally!
Myself and the team at Inspire are here to support you – do get in touch.