4 Cash Flow Management Tips To Recession-Proof Your Business
The COVID-19 pandemic has hit the business world on an unprecedented scale and speed. Businesses, across the globe, are facing a significant fall in demand as coronavirus continues to take a toll on the global economy.
The spread and aggravation of the pandemic which created a worldwide health crisis not only disrupted the global supply chain but also led to the stoppage of factory outputs, thereby putting the global recession clock in motion.
It is during such times that having a seamless cash flow becomes an integral element of the overall risk assessment and action planning for businesses. Here are the 4 ways to safeguard your business with better cash flow management.
1. Review And Adjust Cash Flow Budgets
Calculate what consequences a slowdown will have on the cash flow of the business. Review your business strategy, look into the existing inventory, and adjust cash flow predictions to understand what impact a decrease in revenue will have on your business, and plan accordingly. It is important to look into your cash cycle, reduce your receivables and extend payables as much as possible.
2. Analyse Capital Expenditure
Carefully analyse any investments in capital equipment until the current situation recovers. It is prudent to keep a considerable contingency fund set aside for business should anything go south. As a rule of thumb, analyse how your balance sheet might get impacted under various situations.
3. Consider Alternative Financing Options
Market downturns can often lead to cash crunches. It is during such times, that cash flow may become a matter of concern. Depending on the cash flow situation, you may require to consider alternative financing options to generate faster working capital from your receivables. Alternative financing options like invoice discounting is considered as a viable tool to generate faster cash flow from unpaid invoices.
4. Stay At Top Of Your Finance
Ensure that your finances are kept up-to-date so that you monitor profitability, overheads, stock levels, and debtors and creditors balances on a timely basis. Analyse what will be the effect of asset price deflation? In case the situation goes opposite, to what extent can your business sustain a market downturn? Till what extent can your business endure a low cash flow and high capital expenditure cost? Will decreasing commodity prices cushion some of the pernicious consequences? Answering these questions will help you gain deeper insight into the financial health of your company and help in better cash flow management.
The coronavirus outbreak has triggered a global panic, creating increasing pressure on the global economy. Heading to such uncertain situations, it is prudent to prepare, well in advance, to mitigate risks in the long run. Having said that, the above 4 tips will help you in cash flow management, thereby accelerating business growth in the long run.