In an economic downturn, it is often the working class and families that are highlighted on the news as the primary bearers-of-the-brunt of a sliding fiscal system. Fact is, it hurts everyone, business included. They just pass on their pain to the working class, and families. But it is not secret that once an economy collectively decides to stop buying, everything grinds to a holt, and very quickly, cash flow becomes a major problem.
A company closing their doors for good is a last resort. Employing liquidators, lawyers and trying to squeeze every last dry-dollar out of a defunct organisation is depressing and leaves a bad taste in the mouths of everyone involved. (Except the lawyers) For many directors, they do not see the forest for the trees, and cannot understand why on paper they’re a successful company, but in reality, they’re bankrupt. The problems are tied to cash flow, a company’s life-blood.
Without cash flow, you cannot pay your staff, perform any maintenance, purchase any equipment, or pay your creditors. For many companies, their cash is tied up in invoice-equity or future developments, but the issue is that these sorts of payments can take months, or even years to hit the bank account. Debt accumulates, and the business becomes unsustainable. It is a vicious cycle, and the point of no return has often long gone before staff, management and directors spot the writing on the wall.
So, what can be done about it? Cash flow is vital to any economy, be it a household, country or business. Without it, people do not buy goods and services, which limits the ability of others to buy goods and services. Fear among the general population causing people to keep their money under a mattress rather than spend it. Which is understandable given the current economic climate, but as a business, there are measures that can be taken to maximise your cash flow and ride out these economic squalls.
1. Do Not Always Wait To Invoice
As you complete work, you’re entitled to charge your clients. Rather than waiting until the end of the current month, or pay cycle, invoice immediately. This may buy you several weeks since your clients might be cash-rich at that point of their cycle, and prefer to pay their bills sooner rather than later.
2. Do Not Allow ‘Wiggle Room’
As soon as an invoice is late according to your terms, deal with it. Contact the client either by phone or email to notify them. Otherwise it is an ‘out of sight, out of mind’ scenario for them
3. Keep Up To Date
A shoebox full of receipts is no longer the most diligent way to manage one’s accounts. Cloud based software like MYOB and XERO make accounting tasks efficient and accurate, so you can always be across your finances. You must always have a good idea where your fiscal position is, because it can escalate for the worse very quickly if not monitored.
4. Offer Bonuses.
If you can, offer a bonus to clients who pay on time, and regularly. However if this practice eats into your profits too much, this is not advisable.
5. Do Not Over Order
This is a big problem for many business. They simply over order on stock, and thus their cash flow is all tied up in inventory that they cannot sell, and that has also devalued itself because it is now second hand. Only order in small batches or quantities that you know you can sell, and that you can afford to purchase without breaking into a sweat.
These are just a few tips and tricks to help with cash flow. In the next installment, I’ll go into some detail about invoice factoring, a useful cash-flow management tool that can really help grow your business, even in a economic slowdown.