The last few months have tested business’ resolve more than most, and we’re glad to see companies keeping optimistic about the future now they have found steady footing. As many leaders have discovered, one of the most important things at times of economic uncertainty is ensuring that steady stream of operational cash flow.
While many have started evaluating their revenue streams and engaged in business cost reduction over the last few months, those that already had adequate systems in place have managed to find growth in these times of uncertainty.
If your business is partaking in evaluations now, you’re on the right path to ensuring a return to healthy growth once the economy truly restarts. If you’re unsure where to start when it comes to evaluating and solidifying your cash flow, consider these key success points.
Refine Key Expenditure Areas
The first action for the majority of companies these last few months has been the evaluation of key areas of expenditure. If not adequately managed during times of crisis, it’s these expenses which will often cause the most complications, so they need to be a priority.
One of the most significant points of focus has been employees. Many companies have been saved from challenging decisions by the UK Government’s furlough scheme up to now. However, with the project being wound down into October, companies are now faced with the issue.
Companies must work with their employees and other significant expenditures, such as material suppliers, to find sensible solutions. People and companies need to be more receptive of changes to payment methods to ensure businesses can continue to function in the medium and long-term.
Understand Your Capital Streams
Major businesses will often have multiple sources of cash flow, and leaders must be keeping on top of all of these streams. Usually, they can be divided into:
• Cash from operations.
• Cash from financing.
• Cash from investment.
Times of crisis often force businesses to dip into other sources of revenue besides operations. Many companies have taken out loans to get through the last few months, for example.
While deviation is essential for building a strong foundation, businesses should continue to plan for a transition back towards operational and investment cash flow. Keeping track of these streams and setting goals over the upcoming months and years will be vital for restoring normality to business operations.
Negotiate Payment Terms
One of the best things that businesses can do during times of macroeconomic uncertainty is analyse their payment terms. Many large companies have payments and contracts agreed years in advance, and these may not be appropriate for the current climate.
Business leaders must ask suppliers and other creditors for flexibility regarding payments. Provide a solution that works for the benefit of all parties, mindful of the difficulties being faced across industries.
It’s also crucial that you consider the payment terms currently in play with your debtors. Offering incentives for those that continue to pay early or in advance can help ensure you have that reliable cash flow for if the worse were to happen.
Know Where to Keep Spending
In challenging times, cutting expenditure is the logical and instinctive reaction for businesses. While companies must reduce their expenses, it’s equally important that this is done in the right way and the correct areas.
A common mistake business leaders make at times like these is cutting company spend on areas such as marketing and development. However, these investments are vital for creating short and long-term growth, even during times of economic uncertainty.
When the going gets tough, business leaders should continue to understand their exit strategy. Investing in technology now could provide the boost you need for long-term success, so consider other areas where operational refinements could be made.
Continue to Forecast
Building on the point above, having a clear strategy is more critical than ever during times of economic uncertainty. In challenging times, leaders can become fixated on financial statements and accounts, but long-term cash flow must be still considered.
Consider your cash flow cycle and make forecasts based on these timescales. Understanding your cash flow in this respect will make the other actions listed here much more effective. It’s vital that these forecasts are reviewed weekly during times of uncertainty, as the long-term picture can change very quickly.
Discover Areas of Excess Spend
Last but certainly not least, business leaders need to have clarity as to exactly where their money is going and expense areas that could be refined. The more you know about how you are spending, the quicker your company will be able to transition towards a more streamlined expense model during times of uncertainty.
Here at Expense Reduction Analysts, we’ve worked with many major UK businesses over the last few months, helping them to streamline their supply chains. Our industry specialists understand how important it is that refined long-term procurement strategies are implemented during this time, to help ensure strong foundations for business growth.
If you’re interested in discussing how ERA could reduce your operational costs, why not get in contact with our team? Alternatively, view our case studies to discover what we’ve done for businesses in your sector.