In times of crisis, it’s important to understand two things: what is cash flow in business and effective ways to keep positive cash flow.
Understanding the importance of cash flow and how to manage it can help your business keep its doors open, even during slow or difficult periods.
But what if you’re already faced with a crisis? What can you do to keep your cash flow afloat? Here are five tips.
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Look Deeper with ‘What If’ Questions
In a crisis, your goal is to maintain or return to positive cash flow. One way to do that is to explore “what if” scenarios. But before you can start asking “what if” questions, you need to have an accurate cash flow forecast, which you can create with an app like Cash Flow Frog.
Once you have a cash flow forecast, you can start exploring scenarios, like:
- What if I hire more staff?
- What if I boost my production capacity?
- What if I introduce a new product?
Scenario planning is a great way to explore these what-if situations and make data-backed decisions.
Make Sure Everyone Is on the Same Page
You may understand how to keep cash flow in your business, but what about the rest of your team? You likely have several people making decisions on a daily basis that impact your business.
If you want to keep your cash flow afloat when you’re in a crisis, everyone needs to be on the same page. In fact, everyone should participate in the cash flow forecasting process and in the creation of a statement of cash flow.
It’s challenging for a single person to have the same context everyone else has. When all relevant team members participate in the forecasting process, it’s much easier to get a more accurate forecast and picture of the business’s health.
Get To Know Your Ins and Outs
Use a simple cash flow analysis to understand your “ins” and “outs.” Understanding where your cash is flowing in from and flowing out to can help you trim expenses.
It’s easy to lose track of expenses, especially if you have a larger team or different departments within your organization. For example, you may have two or three team members who have signed up for the same subscription. Cutting this down to one subscription that accommodates all members can save money. Or you may find that the subscription is unnecessary and can be eliminated entirely.
Go through all of your business’s bank and credit card statements with a fine-tooth comb and identify expenses that are unnecessary and can be either reduced or eliminated.
How To Stay on Top of Cash Gaps
Cash gaps can be difficult to spot if you’re not using cash flow forecasting and management tools. With these tools, you can spot gaps before they escalate into big problems.
Cash flow visibility empowers you to take action proactively and to make more informed decisions on which actions to take. A temporary cash gap, for example, may be averted by simply delaying a project or the hiring of new staff.
To stay on top of cash gaps, you can also consider negotiating with suppliers to secure longer payment terms. Depending on the situation, these payment terms may be temporary or permanent.
If you have more permanent cash gaps, like loans or other forms of external funding, cash flow forecasts are even more important. If you want to secure the best terms possible, a cash flow forecast will allow lenders to see where your business will stand in six months or so. Providing a more accurate picture of your business’s current and future financial health will make lenders feel more comfortable extending loans.
Maximize Your Visibility
If you want to keep your business cash flow afloat during a crisis, then you need visibility. To maximize your cash flow visibility, make sure that you’re creating both short-term and long-term forecasts.
Your short-term forecast will give you a detailed roadmap for the days and weeks ahead. This will help you make day-to-day decisions, like when to chase past-due invoices. Your long-term forecast will give you a “big-picture” view of your business’s finances. This will help you make more strategic decisions, like whether you should liquidate assets or delay projects.
Cash flow forecasts also include data that you won’t find on your bills and invoices, like VAT and payroll payments. Only through forecasting can you maximize your visibility and get an accurate picture of your cash flow.
Final Thoughts
Keeping your cash flow afloat during a crisis can be challenging, to say the least. However, if you can maximize your visibility, keep expenses under control and stay on top of cash gaps, it will be much easier to keep more cash coming in than going out. Ensuring everyone is on the same page and practicing scenario planning can help ensure that you’re making better and more informed decisions.
