Tips for Managing Cash Flow During Times of Flux
For many American businesses, recent economic upheaval has forced them to reevaluate their business models, their assets, and what success looks like. Some industries needed to find ways to stay afloat, while others were slammed with unplanned-for demand.
A challenging time can be an opportunity to take a fresh look at your business and develop some cash flow best practices. Understanding where your business stands and what resources are available can help you make better, more informed decisions.
Get in the habit of making cash flow projections
Many businesses go with the flow from day to day. Making projections might seem like unnecessary effort, but when done consistently they can reveal efficiencies that improve profits or let you invest in growth – or highlight where you can shave expenses in hard times. Budgeting is critical to understanding your operating liquidity, which is the lifeblood of your business’ ability to sustain itself. Planning for and managing the timing of cash outlays and inflows is as important as managing profit margins. Talk to an advisor to get started, and know that it takes practice and experience to make good projections.
Understand your assets and don’t underestimate yourself
Businesses that start small and experience large growth may not be aware of all the tools at their disposal. Inventory, equipment, accounts receivable, and other working assets may qualify a business for credit or loans they couldn’t access before. While assets may provide the opportunity to leverage their value, asset value is only part of the solution. Be prepared to demonstrate the ability to use capital wisely and repay capital providers through enhanced operating cash flow and profitability. Make sure your growth strategy is aligned with your financial position. Keep good records and talk to a banker or advisor before deciding how to address a financial need.
Pay special attention to credit practices
During times of economic risk, vendors or suppliers might want greater assurances of a customer’s ability to pay before extending credit. Business owners may begin requiring up-front payments. Strive to build solid credit references, organized and timely financial reporting, and a strong relationship with your business partners. The upside of these credit practices is that your business becomes a better credit risk and faces less uncertainty.
Rethink fundamentals like staffing and space
Today, businesses are in a unique position where they can step back and rethink even their most basic expenses. Some businesses have learned they can do more work from home, lessening real estate requirements; others need reconfigured spaces for a new business model. Investments in robotics and automation also might make sense for both economic and public health reasons.
Build a team you can count on
Cash flow is a function of finance, business strategy, accounting, legal considerations, and operations. It’s hard to be an expert in all of those areas. Good leaders focus on how they can pivot to weather and even succeed in trying times, then surround themselves with specialists they can trust in other areas.
The business advisors at Alerus are ready to be a part of your team. We understand what it takes to pivot, evolve, and grow in the face of challenges.