Given the current scenario and in general, in times of economic uncertainty, controlling cash flow becomes a critical point to continue trading without losing liquidity. Today we have all been rethinking scenarios. The main one for aspiring entrepreneurs and entrepreneurs with a track record is to start strengthening the financial culture in business.
The benefit for those entrepreneurs who do is that they have a better projection of their finances by quantifying their needs, identifying their investment capabilities, and how they generate value for their products or services.
For this reason, proper management and monitoring of cash flow is vitally important to meet any future challenges. Here are some of the steps you can take to optimize liquidity in your business
- Analyzing and detecting the reasons for the cash crisis: We have commented in other articles that finance is the least glamorous part of the business. It is important that all owners along with the financial officer or accountant review the results statements, identify the margin of profitability in each product or service, and determine which ones are more and less profitable.
Finding the causes of the cash flow crisis ensures that this does not become a recurring problem.
In the market, there are many management and finance systems, which generate reports automatically and in real-time, because they integrate the areas of finance, accounting, collection, production, and inventories. - Adjust the business plan and budget: Sometimes business owners need to stop along the way and adjust their business plan or budget. If the owner identifies a deviation in the plan for reasons outside its administration, such as the current Pandemic, the suggestion is to modify the business plan to focus on the services and areas that generate the most profit or that are more suited to the situation.
Another strategy may be to optimize the pricing structure and most importantly to identify unnecessary expenses. At this critical time, it is important to change the company’s priorities, adjust processes, operations, and expenses. - Prioritize accounts receivable: Track accounts receivable and evaluates strategies such as accepting pre-orders for products. Consider measures such as requesting a deposit or partial payment in advance from new customers, rather than billing the full amount on a single invoice after the services have been provided or the products have been delivered. Modify the collection process to bill customers immediately after delivery of products or services. Finally, track overdue accounts. Ask your customers for partial payments, provide additional payment methods, such as credit cards; in a cash flow crisis, every penny counts.
- Negotiating accounts payable: If it is a question of delaying or reducing the company’s cash outflow in the short term, being honest with suppliers is the first step in deferring payments.
This will help you gain room to maneuver and not impair your business relationships. - Reduce expenses: This tip is the fundamental principle for all businesses and not just in times of crisis. A business owner must examine every penny that comes out of the bank account and eliminate all unnecessary expenses and prioritize the costs that keep the company operating and generating revenue.
- Discard non-essential assets: Discard non-essential business assets that the company’s operation does not depend on. If you sell them, it can be a flow entry that helps alleviate the flow shortfall.
- Consider loan options: Commercial loans are just one of several alternatives an employer has for injecting capital. Before you do this, determine your company’s borrowing capacity, analyze interest rates, and consider several options for you to choose the one that best suits your company’s present situation.
- Getting partners: Selling shares is another way to get capital quickly. All owners of the business must also evaluate this step. As it is a more important decision than taking on debt, we must ensure that it is truly necessary to solve the cash flow crisis. It is recommended to be careful with the investors and not allow the crisis to lead to making bad decisions for the future of your business.
It is important to consider several scenarios; this will allow you to anticipate the circumstances.
Experts project that 2020 will not be a year of profits but of survival, for this reason, it is not far-fetched to imagine a moment where we are receiving zero revenue and to anticipate what measures should be taken to have a cash flow and better deal with the crisis.
Our sources: https://www.estrategiaenaccion.com/, https://www.bind.com.mx/, https://endeavor.org.co/
