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Working Through Cash Flow Difficulties
By bpjames | March 5, 2010
It is common for businesses to suffer from cash difficulties from time to time despite prudent cash management. This could be due to factors such as poor economic conditions, a sudden market shift or loss of a key customer. It is critical to work through these difficulties to survive.
I provide suggested strategies to help you through difficult cash flow situations, as follows:
Break down your spending and cut costs
It is important to separate sales costs from your operational costs. Your sales costs vary depending on sales volumes and include activities such as direct mail, advertising, telemarketing and field sales. Operational costs, on the other hand are fixed regular amounts you are committed to pay irrespective of your sales volumes. These might include, rent, rates, utilities and staff costs. Once you understand your costs in detail you can then consider whether spending cuts are possible.
Here is a list of some of the items where you may be able to cut costs although it’s important to recognise that cost cutting has limitations:
- Cut out wasteful marketing activities
- Negotiate better terms and prices with your suppliers or even switch suppliers
- Negotiate lower rent
- Move to smaller and cheaper premises
- Renegotiate any loans/overdraft facilities
- Negotiate with staff for less hours, pay cuts or performance related pay
- Staff redundancies
If you have loans on a capital and interest basis you may be able to switch them temporarily to interest only to save on your regular payments. If you also have personal debt and are struggling to meet the repayments, you can consider a debt management programme. The interest is suspended and you agree an affordable regular payment. These schemes can be set up free through charitable organisations such as Consumer Credit Counselling Service (CCCS) or Payplan. It may be worth visiting your local Citizens Advice Bureau for free help and guidance.
Increase sales and revenues
Review your sales conversion rates from leads generated. There could be scope to increase your conversion rates by reviewing your sales process. Are you following up leads in an effective and systemised manor?
You may be able to generate new leads with little or no cost. Are you maximising repeat sales from your existing customers? You may be able to obtain quality referrals from your existing customers and other contacts within your business network.
It’s good practise to review your pricing on a regular basis. You might be able to increase your prices selectively. Calculate your average transaction value and gross margin. You may be able to increase your average transaction value by combining a range of related products and services in a package.
Review your credit control. You may have outstanding invoices that can be chased for payment. You can use specialist debt recovery specialists for more serious situations. Some operate on a no collection, no fee basis which limits your financial risk.
If you typically operate a long payment cycle you might want to consider invoice discounting or factoring. This is where you receive payment upfront less a fee for the service.
Borrowing and available grants
If you operate on high gross margins you might be able to justify short-term borrowing or overdraft facilities. If you can generate gross profit greater than the cost of borrowing then it makes sense to borrow. This enables you to retain cash reserves within the business for risk management purposes.
You may qualify for certain grants. These are available for specific industries such as agricultural and for specific purposes such as innovation and environmental purposes. Check the Business Link website at http://www.businesslink.gov.uk/
Overall, you want to forecast and track the requirements for cash in your business to ensure funds are available as they are needed.
Brian.
Topics: Strategic planning |
March 5th, 2010 at 4:02 pm
Can you tell me who did your layout? I’ve been looking for one kind of like yours. Thank you.