Cash flow management is an important part of running any business. But it is especially important for small-medium size businesses where the goal is to achieve steady growth and avoid any losses that may have long term effect. In times of uncertainty, it is essential to re-evaluate your cash flow management and trading cycle; to look at the necessary steps and ensure your resources are sufficient. Are you looking at a down turn in the market?
CBHC Financial Director, Ian Harris has written a quick guide to help business owners navigate their finances in the face of Covid-19 disruptions. For further advise, contact a member of our team today. We are here and ready to help.
Reviewing your cash flow management in 10 steps
What do you have to spare?
Assess any surplus cash your business currently has available.
Covering initial costs
Assess how much revenue you need to generate to be able to meet your current overhead commitments. This includes staff wages or salaries over the next few weeks and months.
If you carry stock for sale, assess how quickly you can turn this stock into cash and what total revenue this will generate. What minimum amount of stock you will need to replenish in order to meet a reduced demand.
What’s the season?
Ask yourself, where am I in my seasonal trading cycle? Is this normally a period of profit or loss making?
Why do I owe?
Review your business’ amounts owed to suppliers and assess whether you can extend the payment period without adversely affecting your trade.
What am I owed?
Review your business’ aged receivables and assess whether your customers are regularly exceeding their payment terms.
Review your planned capital expenditure and assess whether any of this can be deferred to a later date.
Review what you owe to HMRC and assess whether you can meet these commitments.
Ask your bank
Review your company bank borrowings to assess whether any of the lending could be re-structured to provide additional short term funds.
Prepare short term forecasts to assess whether you are likely to have sufficient cash based on a normal level of trade and based on a reduced level of trade.
Actions to take in an economic downturn
Communicate with you key suppliers and seek improved payment terms.
Communicate with HMRC and explain issues and seek to agree on payment plans over a period of time.
Where capital expenditure is necessary seek to fund with medium term loans rather than paying cash.
Identify products and services which can be bought and sold quickly rather than having to carry stock for the long term.
Chase aged receivables where customers have exceeded their limits.
Prepare accurate financial information to support bank or alternative short term borrowing.
Stay Calm, keep focused and seek assistance from your accountants and advisors.