Cash Flow – How To Unlock Liquidity For Business Strategic Moves?
Over the last few months, the pandemic outbreak and its repercussions have created an unpredictable and testing economy, prompted structural changes in customer preferences, supply chains, and ways to market, thumping companies off balance. Today, businesses are struggling to reimburse for the reduced sales, and unlock the liquidity for strategic moves.
A few companies have been compelled to close down because of curtailed sales and crashing revenue, while a few are still battling to offset their cash flow with the changing market. Business leaders today are dealing with the colossal business continuity challenges posed by COVID-19. Meanwhile, businesses that have endured are now looking forward to being prepared for the next downturn.
Perform A Quarterly Cash Flow Forecast
One of the most effective ways to ensure that your business can stay afloat amidst the financial crisis is to have an actionable cash flow plan in hand. Having a total understanding of where your money is coming from, and how it is being spent is instrumental in the long haul. Consequently, conducting a quarterly cash flow analysis and forecasting will help visualise the future, increase the runway of the business, and help to make strategic decisions.
Review Alternatives For Liquidity
It’s impossible to recession-proof a business. That being stated, businesses should zero in on creating liquidity. During the downturn, numerous businesses operated on tight cash flows, which further led into multiple disruptions. Not having adequate liquidity is a catastrophe waiting to happen. Thus, liquidity is an urgent part of any business. There are several options to create liquidity from alternative finance solutions, from using business assets to opting for invoice discounting services.
Tighten Your Invoicing Terms
Ensuring tight invoicing terms is one of the basic components to ride out the pandemic. The first thing numerous customers do in a market downturn is to expand their payables, which kills the cash flow. Secondly, it is ideal to seek a business credit extension, which requires consolidating and having a sound financial balance. Consequently, businesses ought to guarantee invoicing terms are tight.
Keep A Tap On The Industry Trends
Discover ways to streamline and enhance, particularly monetarily. Get lean and smart about where you’re spending, saving, and investing. Keeping a tap on the industry trends and the business patterns will prove beneficial in the midst of testing times. Keep in mind, even the best, most prepared businesses can become “trivial” in the event that they fail to grow at the pace of their competition or client expectations.
Inventory Management Is The Key
Inventory management is a huge driver of liquidity, and gives a solid bellwether regarding the probability of a business’ operations being efficient. Consequently, improving inventory management can have a resoundingly positive impact across the organisation. Among the scope of activities that businesses can embrace to improve their inventory management, two activities should be considered reasonable, given the current circumstance:
- Conducting Inventory Rationalisation: Product-focussed companies should conduct an inventory rationalisation to portion their items by profitability, volume, and strategic value. This can assist them in prioritising product sales dependent on the tangible value, and assisting them with recognising underperforming products to either rethink or liquidate and monetise the asset. In the current crisis, unit economics should be at the front line of inventory decision-making. Businesses need to scrutinise any unprofitable products to decide whether offering them is crucial to driving the sales. On the off chance that they’re not fundamental, they should be dispensed with.
- Liquidating Underperforming Assets: Businesses need to look at their inventory and distinguish sluggish or outdated items. Exchanging these things could give quick cash, while additionally making more stock space for higher-performing items.
As the financial impacts of the COVID-19 continue to linger worldwide, it has become essential for businesses to explore their options for addressing various cash flow challenges. While the pandemic is creating challenges, it’s also additionally compelling businesses to rethink their strategies. By improving liquidity management, businesses can enhance their cash flow, thereby drive margin and improve their operational efficiency.