3 Tips When Cash Flow is Tight
May 05, 2020
Cash flow is tight in businesses and in some cases is non-existent in today’s Covid-19 world. But chances are you’ve had tight cash flow in the past when business was “good” or “normal”.
Like any situation you can choose how you react to it. You can bury your head in the sand or throw your hands up in the air and give up.
Or, you could choose to think differently.
1. Is this an opportunity?
Is this a chance to re-think your business model? Is this an opportunity to re-consider what you do and how you do it? Does this help you to pivot your business to be stronger in the future?
Perhaps the opportunity is in reviewing the way you invoice your clients or customers. Do you do the work, invoice for the work and then wait for your client or customer to pay you? Is this the time to re-consider that? If you think about most retail type businesses; you don’t walk out of the shop or their premises with your goods without having paid for them.
Maybe now is the time to change your business terms to require payment up-front (or a portion of it). Consider requiring payment when milestones are met and no further work until the payment is received. And what about payment before the handover of the final result.
Just because no one else in your industry is doing it, doesn’t mean that you can’t. You may well find that your competitors will reboot their business with a different payment model for their sales too.
2. Know your numbers
Now more than ever, knowing and understanding your numbers is critical to survive the lockdowns and to plan for the reboot of your business.
In many situations, some business is better than no business. But you need to know your numbers to work out whether that is the case or not.
One coffee shop owner I know tried to stay open to offer takeaway coffees and food. He found that there just simply wasn’t enough business to cover the costs of the food, let alone help to pay the rent or other costs. And certainly, there wasn’t any money left to provide income for the owner.
Another business I worked with some years ago identified the revenue needed to cover the costs of wages and running the business. As long as the actual revenue they received was greater, it meant there was some money to pay the rent and other overhead costs.
3. Understand the timing of money in and out
The key with cash flow is in the timing. What money is due to come into your bank account when and what money has to be paid out when.
A great example of the stresses this can cause is the JobKeeper program requiring the business owner to fund 4 weeks of payroll before receiving the JobKeeper payment to reimburse them. Whilst the logic of seeking funds from your bank made sense, the logistics and ability to obtain that funding quickly was a challenge.
Take time to figure out what money you expect into your bank account and what money will go out of it on a weekly basis. Then you will have a clearer picture of your business position.
When cash flow is tight, there are usually a number of variables at play.
At times when it’s business as usual, the cause invariably relates to outstanding invoices, low or no profit, or insufficient sales. But when it’s Covid-19, whilst the reasons are different, there is the same opportunity to re-think your business model, to know your numbers and understand the flow of money in and out of your bank account.