Creating More Cash Flow Certainty in Your Business

Managing cash flow effectively is crucial for business survival at any time, but especially now during the COVID-19 restrictions and in the immediate aftermath. Unfortunately, no one has a crystal ball to know how long the economic recovery process will take.

Creating as much cash flow certainty as possible for your business is more important now than ever before. The best ways to do that are to:

  • get your financial records up to date
  • immediately review your cash flow budget
  • cut discretionary expenses
  • review any planned capital expenditure
  • review your stock levels
  • incentivise your debtors
  • negotiate with your creditors
  • take advantage of government support programs
  • look for alternative revenue streams
  • reassess your finance options.

We will now look at each of these cash flow measures in turn.

Get your financial records up to date

Getting your financial records up to date will help you to put a plan in place to manage your cash flow. If you don’t know exactly where your business stands financially, it is difficult to make smart decisions.

You need to know key information like your upcoming expenses, current stock levels, any amounts owing to you from your debtors and any amounts that you owe to your creditors.

Immediately review your cash flow budget

Knowing where you currently stand financially allows you to do a review of your cash flow budget in light of the changed business circumstances caused by COVID-19.

If you already had a budget in place, now is the time to review all your revenue streams and expenses to make sure they reflect reality.

If you have never done a budget before, you should do one immediately. Your business’ survival could depend on it.

Cut discretionary and variable expenses

Reviewing your business expenses as part of updating or preparing your cash flow budget will often reveal discretionary or ‘non-essential’ expenses. Now is not the time to be spending money on anything that is not essential. You should aim to eliminate these expenses.

You should also look at minimising any variable expenses that you have if possible. Variable expenses are items that you have some control over.

Review any planned capital expenditure

If you had planned on any capital expenditure this year prior to the COVID-19 pandemic, you should review that decision in light of the changed circumstances. For example, if you were considering buying new equipment, will your customer demand in the short to medium term justify the expense?

You could also consider leasing equipment rather than buying it outright or selling any equipment you currently own and leasing it back to free up some funds.

Review your stock levels

Managing your stock levels effectively can help you to boost your cash flow. If you have too much revenue tied up in your stock, you will reduce your cash flow. Be careful about buying any slow-moving stock until circumstances improve.

It is also important not to have too much perishable stock if demand for your product is affected by COVID-19.

Incentivise your debtors

Your debtors are clients or customers that owe you money, so it is important to stay in touch with them. You don’t want them to be a bad debt, and if your business can afford it, you can provide incentives such as discounts for early payment to help boost your cash flow.

You should also be wary of extending credit to new customers during the current economic climate. You should review your payment terms for all of your existing customers too.

Negotiate with your creditors

Your creditors are individuals or businesses that you owe money to. If you are struggling to make any payments, contact your creditors and see if you can negotiate a payment plan. This plan could boost your cash flow by delaying payments. If you are struggling with your cash flow, be wary of taking on any more debt during this uncertain time than you already have.

Negotiating with your existing creditors could include negotiating with your landlord (if you lease your business premises) about reduced or delayed payments due to COVID-19. Landlords are required to negotiate in “good faith” with their tenants under the Victorian government’s Commercial Tenancy Relief Scheme.

Take advantage of government support programs

Both the Federal and Victorian State governments have implemented a range of programs to help businesses affected by COVID-19, including:

Look for alternative revenue streams

COVID-19 has forced many businesses to look for alternative revenue streams. The most obvious has been to increase online sales of goods and services. You should explore this option for your business if it is feasible.

Reassess your finance options

It is important to reassess your finance options if you need additional funds to get through this time. Lenders may be more likely to approve your application due to Coronavirus SME Guarantee Scheme, which provides a federal government guarantee of 50% of new loans issued by financial institutions to small to medium-sized businesses.

However, it is worthwhile seeking independent professional advice before taking on any more debt for your business.

How we can help

Our experienced team of advisors at Wilson Pateras in Richmond can help you navigate your business cash flow during these tough times. Our business services include accounting and tax, bookkeeping and tax planning. We’ll provide you with cash flow advice and the information you need to make smart business decisions.

Contact us today for a complimentary, obligation-free consultation to find out how we can help you!

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