With the economic context of the UK, it’s no surprise many businesses are experiencing cash concerns. Inflation, the energy crisis, supply shortages, and the risk of recession have all seen economic confidence decline and prices increase, bringing unwanted ramifications for SMEs.
Despite the external influences, it is crucial to maintain cash flow in your company. Doing so will enable you to survive trying times, continue to meet your financial commitments, and mitigate the impact of rising costs.
We have listed seven tips for maintaining cash flow in the coming months.
- Conduct regular cost audits
Over time, your costs and overheads grow as supplier prices change and you introduce new aspects into your operations. Conducting frequent audits allows you to review these costs.
Search for elements, such as those that don’t add value to the business, and eliminate them.
You should also determine costs you can lower by switching suppliers or finding cost-effective alternatives (such as cheaper materials).
It’s worth speaking with your existing suppliers and shopping around to ensure you receive the most suitable and competitive deal for your needs.
- Adjust your pricing model
As your costs rise, you will need to pass the increase on to your customers. It means adjusting your pricing model to ensure you generate sufficient profit.
Having to inform customers of price increases is never ideal. It’s crucial to explain why you have had to make the changes to soften the blow – hopefully, most will understand, given the cost-of-living crisis and energy crisis affecting the UK.
Remember to find the balance between covering your cost base and remaining competitive in the market, or you risk losing customers.
- Have suitable credit management protocols
With money already tightening, the last thing you need is late payments affecting your cash flow. It is essential to have good credit management processes that minimise the chances of this happening.
Credit management encompasses various elements, including:
- Conducting credit checks on new customers
- Ensuring customers are aware of payment deadlines
- Sending payment reminders
- Having a warning system in place for late payments
- Referring bad debt to an external credit collection agency
By creating robust credit management protocols, you will make expectations clear, so the chance of late payment is diminished. It will also give you a plan B if you fail to recoup payment rather than leaving your business funding the shortfall.
- Improve cost efficiencies
Cost efficiency will prove crucial in the ongoing cost crisis. It focuses on allowing you to meet your objectives at the lowest possible price. Start by reviewing your processes and asking where improvements can be made for efficiency.
Examples of action to boost cost-effectiveness include:
- Minimising waste such as supplies or resources
- Encouraging productivity from your staff
- Reducing energy consumption
- Implementing intelligent processes
- Reducing turnaround/lead times
Remember to balance quality with cost and continue to meet customer expectations. Don’t be tempted to cut corners to save pennies, as it might harm sales.
- Utilise cash flow forecasts
Cash flow forecasts are integral in managing cash flow and understanding what the coming months should look like in your business.
Start by setting the period you want to predict – usually 12 weekly rolling cashflows will suffice. Then, estimate your incoming sales payments and outgoing expenses during the period. The money you have left over will highlight your cash flow position. If it is negative, it means you will experience difficulties unless you have sufficient reserves.
Cash flow forecasts are predictions, so it’s essential to review accuracy as you go to ensure you have as realistic a view as possible.
- Have good accounting practices
Good accounting practices are also key to cash flow. An effective accounting system will make it easier for your customers to pay you and help you to track your financial incomings and outgoings.
It’s crucial to ensure you have an experienced bookkeeper or accountant (either internally or externally) to keep on top of your finances and provide accurate reports. An automated, digital system will also make the job much easier.
Having adequate accounting practices will simplify your cash flow tracking. It will also allow you to identify red flags and solve them before too much disruption occurs, whilst improving your overall financial health.
- Use external finance
If you are facing cash gaps, external funding is crucial to overcoming challenges and minimising the ramifications on your operations. Fortunately, many financial solutions are designed to improve cash flow, regardless of your business type.
- Invoice finance – releasing capital tied up into unpaid invoices through a short-term loan
- Stock finance – unleashing cash from unused stock in your warehouse
- Trade finance – providing funding to close the gap between importers and exporters
- Leasing – helping you to secure the equipment you need
- Sale and leaseback – giving you a lump sum for the sale of your unencumbered equipment, which is then leased back to your business
- Short-term loans – giving you funds that are repaid over a short timeframe
If you’re unsure which option is best for you, consider speaking to a financial specialist.
Maintaining positive cash flow is vital at the best times, but even more so in economic uncertainty. Undertaking relevant action to manage your cash flow will allow you to guarantee your survival and minimise the impact on your company.
If you have cash flow concerns in the coming months, speak to a UKBA advisor who will help you prepare your business for the storm with expert guidance.