In these unprecedented times, many small and medium-sized businesses are already reporting significant problems with cash flow resulting from the COVID19 Coronavirus outbreak.
The Government has announced a multi-billion pound package of measures to help SMEs with a promise of further financial support in the coming weeks and months.
Chancellor Rishi Sunak has pledged to “do whatever it takes” to help businesses and individuals who are experiencing financial distress.
In addition to drawing on Government backed financial support, there are a number of measures business owners can take in a bid to manage their cash flow as effectively as possible.
Frequency of staff wages
Some industry sectors traditionally pay their employees weekly or fortnightly but this can have a negative impact on your business cash flow, particularly if your terms of business allow customers 30 days to pay. Regular late payers or clients who are themselves struggling with cash flow, can exacerbate the situation.
Now may be the time to talk to your staff about moving to monthly salary payments.
Consider turnover issues
Clearly turnover will be important for your business, but you need to ensure that you do not fall into the trap of ‘over-trading’. Blindly chasing turnover can be risky because of the up-front costs you will inevitably incur. What happens if payments are not received until weeks or even months down the line? How will your cash flow be affected as a result?
No-one wants to turn away business in the current economic climate but you may wish to consider asking for advance payments to cover materials and supplies.
Equipment purchases and capital expenditure
Think carefully about committing to purchase any large pieces of equipment which could take a chunk out of your capital reserves. If the equipment is necessary to keep your business going, consider a hire purchase agreement or bank loan so that you can offset the cost over a number of months or even years.
Take a good, hard look at your fixed overheads. Now might be the time to outsource your payroll and HR services to minimise the fixed costs of having in-house staff. Freeing up funds in this way, leads to a leaner working practises so that your business can remain flexible with a focus on staying profitable.
Under-pricing your goods and services to attract new customers is a tactic used by many businesses. In the short term, it keeps the work rolling in and your staff busy. But the ‘keeping busy’ strategy only works for so long. In the longer term it can be detrimental to your business model. Your customers will become used to paying the initial low price, making it much harder for you to then justify increasing the cost. Very soon you could find yourself providing goods and services as a loss leader which will lead to your business leaching money.
Try not to give into the temptation of under-pricing the work you do. Focus on the superior service that you are able to offer rather than being price-led.
Every business suffers the pain of late and slow paying customers. The current coronavirus crisis means that many more suppliers may default on their payments, leading to a knock-on effect for your business cash flow.
Now is the time to ensure that your credit control function is working efficiently. If you don’t have a dedicated in-house facility, you can outsource this business function in the short term to help your business ride the economic storm. A good credit control system is reliant on your business issuing invoices without delay so that any lapses in adhering to terms of payment can be followed up as soon as they become due.
As a business owner you will know that balancing the books and ensuring that your cash flow remains healthy, is critical to ensuring your business not only survives but, in the long term, thrives.
For help and support with all aspects of cash flow, payroll, management accounts, credit control and business financing, please contact our expert team today.