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Government Job And Loan Support Schemes Extended
A number of government support schemes designed to support employers, employees and business owners through lockdown 2 have been extended. Here’s a...
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How To Manage Your Cash Flow Through A Crisis
Rick Smith, MD of Forbes Burton business rescue and recovery consultants explains how to keep your cash flow in check through a crisis.
Cash flow is something that we see day in, day out as an issue for small businesses and sole traders. There’s no getting away from the fact that when it is not working properly, it's a real dampener on your business - if not catastrophic. When it is not working properly, it needs to be addressed quickly.
What can cause cash flow problems?
Cash flow stumbling blocks are of course common, especially within the contracting sector. The sad reality is that more than half of SMEs, in general, don’t survive longer than five years and poor cash flow is a very good indicator of things going downhill. If a small business is to survive its early years, cash flow needs to be tackled head-on.
Taking a step back and considering your options for improving this situation can work wonders.
Often stemming from bad debts, cash flow problems usually exist because of those niggling debts that can’t be recovered. Unfortunately, many contractors and those starting out in the construction trade have to seek help to avoid defaulted payments. Things can quickly spiral out of control if action isn’t taken. It’s not just new businesses that struggle, either. Anyone can suffer from cash flow problems.
How do I protect myself from cash flow problems in a crisis?
It might sound obvious, but you should always have credit control systems in place to collect any money that is owed from customers. There can be no doubt that prioritising the efficiency and effectiveness of this system is important, especially if your company is in its early and most vulnerable stages. This is often the time when your reputation doesn’t precede you yet, contracts are hard to acquire and funding is critical.
In times of national crisis, however, it could be more challenging to recover debts that are owed to you.
By now you should have at least looked into the Business Support Fund that the government has provided for businesses affected by Coronavirus. If you’re eligible for financial assistance, it’s certainly a good idea to take advantage while you can and take some pressure off of your cash flow.
Reminders
Many companies simply need to set aside time to administer reminder emails and letters and to pass anything overdue to recovery firms quickly. The sooner this kind of action is taken, the better. Improving your cash flow is all about urgency.
Don't add debt
You should also be aware of the number of debtors you have at any given time; keeping cash flow in mind will help to keep your business operating day-to-day.
As well as this, it’s advisable to set a debtor’s book limit appropriate to your business’ capacity. Once this limit has been reached, you could ask new customers to pay in advance. This ensures that you aren’t adding more debt to the business and only needs to be introduced in the short-term until your debtors are cleared. Another option is to invoice for a percentage of the fee upfront for some or all of your customers.
Where do I start?
Starting on the right path to better cash flow can seem daunting but is worth it in the long-run when no gaps are evident in your business and you aren’t losing sleep over these matters.
Many directors and small business owners simply feel that they don’t have enough hours in the day and assume that they can catch up with bookkeeping later. This is often the root cause of cash flow problems as small issues go undetected until they evolve into big problems – the sooner the issue is caught, the more likely it can be addressed.
It is so important to put a few hours aside to work on your company rather than for your company. If you are experiencing cash flow problems then you are not alone. This especially rings true if businesses are still within the first few years of company incorporation. These first years tend to be a huge learning curve.
Overall
It’s vitally important to have a plan in place to protect your cash flow, especially in the middle of a national crisis. It can sometimes be difficult to plan your future in the short and long-term, so professional help is often what is needed and there are many ways it can be remedied. It’s always best to review the state of your business regularly, so be prepared ahead of these issues raising up as concerns.
Many of the tips included above also apply when it’s business as usual. As long as you are aware of the issues then you can tackle them head-on. Having your cash flow under control means you can focus on what’s important - bouncing back after the crisis has run its course.
Picture: The author.
Article written by Rick Smith MD of Forbes Burton
24th April 2020