As a follow on to my previous article on cash flow management let’s look at ways to prevent poor cash flow.
Healthy cash flow isn’t achieved simply by making sure your outgoings don’t exceed income. If you’re to survive, sufficient cash must enter your business so you can pay your bills when your suppliers ask for their money.
Steps to prevent poor cash flow
Here are some suggestions for things you can do to prevent these scenarios (mentioned in my previous article) from occurring in the first place.
- The first step is to ask the hard questions in order to find an appropriate solution. In speaking with business recovery experts, the most common questions a business owner should ask when it comes to maintaining a healthy cash flow include:
- What is the new break-even level for the business? How does this differ from the previous level?
- What is the impact to revenue and earnings if you lose a major customer?
- What is your tipping point? For example, how far are you willing to go to maintain earnings and are you prepared to lose customers in the process?
- How is cash flow affected if debtors take extra days to settle their accounts?
- What changes will you require to your banking facilities and what would be your bank’s attitude to an increase in lending?
- Are staff cuts needed and how will you deal with this?
- Do you have the required cash flow to fund redundancies?
- What overheads will you reduce and what measures will you take to preserve cash?
- What non-core assets could be sold to reduce debt and provide additional cash flow?
- What do you have to do to meet HMRC tax requirements?
By doing this, you will be able to react quickly if conditions change suddenly and show financers you are prepared for any challenges that may arise.
By asking the ‘what if’ questions and creating strategies to deal with given scenarios to minimise risk, you will be able to maximise the potential and opportunity for the business. As a direct result, key stakeholders will have increased confidence in your company’s abilities and knowing possible outcomes will minimise the stress on the business when tough decisions have to be made.
If the in-house expertise does not exist to enable you to find the answers to the above questions source help from an external business expert.
Do you have a Cash flow forecast for your business? If so do you understand what it’s saying about your cash position?
Look out for more upcoming articles on Cash flow management.