Cash Flow Management: Tips & Strategies During Economic Uncertainty
With inflation on the rise, it’s vital to understand how cash flow management, forecasting and key business relationships can help you survive economic turmoil and prevail stronger at the end of any crisis.
What is cash flow management?
The process of cash flow management is understanding, tracking and optimizing the amount of money (both in cash and other assets) flowing into an out of a business. Positive cash flow occurs when more money comes in than is spent; negative cash flow occurs when a business spends more than they have coming in.
Why is cash flow management important in business?
Cash flow management is important because it provides an understanding of how much money your business makes versus how much it loses, which in turn allows you to manage your business activities, financial investments and more without running the risk of losing profit.
3 Tips for Managing Cash Flow During Economic Uncertainty & Crisis:
1. Understand that cash is king
This old and enduring saying is more relevant than ever as businesses brace themselves for the economic impacts of inflation and a looming recession.
Our experts recommend a 13-week forecast maintained weekly to be used as a tool to manage the current situation.
What should you include in your weekly cash management forecast:
- Clearly identify your cash inflows and outflows
- Categorize and prioritize expenses by those most critical to the organization to those that can be deferred
- Consider impacts in revenue by categorizing and prioritizing customers from those that have a strong credit and payment history to those that are still new or do not have strong credit and payment history
- Make cash forecasting a cross-functional team effort by incorporating insights and perspectives from teams outside of finance and accounting such as sales and business development
- Perform sensitivity analysis at various levels of cash flow to determine how certain risks will be managed such as debt covenants
2. Manage aging accounts receivables
Focus on collections by prioritizing large balances and sorting unpaid invoices that can be collected within a relatively short period of time.
Clearly communicate with your customers what your needs are and get creative with ways to collect payment.
Types of creative collections methods to utilize during times of economic crisis:
- Early pay discounts
- Incentives for paying upfront for services or products
- Maintaining strong relationships during a time of crisis will be critical to helping you survive. Be transparent with your customers and work with those that can pay balances sooner.
3. Focus on strong communication between teams, stakeholders & partners
Being clear, transparent, and consistent about your business position with key stakeholders and business partners will go a long way in helping you manage cash inflows and outflows.
How communication helps manage cash flow during times of crisis:
- Work with creditors to defer payments when possible
- Talk to your vendors to work out updated payment terms
- Contact customers with outstanding balances to collect payments sooner, when possible
- Talk to your landlord about possibly deferring rent payments
- Communicate with your employees. If your business does have to make a difficult decision such as reducing your workforce, consider approaching the situation with empathy and demonstrate solidarity by encouraging senior leadership teams to take on temporary pay cuts when possible.
Why Cash Flow Management During Times of Economic Crisis is So Important
Strong cash flow management will allow you to better manage your business, while alleviating the risk of profit loss.
As we face economic uncertainty and possible inflation in the future, staying grounded in fundamental business practices and disciplines such as cash forecasting and constant and clear communication will be key to prevailing as a stronger and resilient business.
Lucas Walters is a leader of Bridgepoint’s Financial Consulting practice. He provides financial and operational leadership expertise (CFO services) to Bridgepoint
Need Help Managing Cash Flow?
Bridgepoint Consulting’s dedicated team of consulting professionals are here to help you navigate this dynamic environment, from revamping your business strategy to executing on key finance and technology initiatives or integrating ERP or CRM systems.
Contact us today or click below to learn more about our Finance & Accounting advisors.