By Jamie O’Hanlon, Avid Partners

Managing cash flow remains the single most important factor in surviving in business and is one of the major challenges to arise out of the current business environment for every business owner.

The current environment may cause more cash leaving your business—whether that’s through payroll, rent, and other fixed or variable costs—than you have coming in. 

The good news is that managing cash flow isn’t a new concept.  This is not the first time that Irish SMEs have faced this level of uncertainty.  In this article, Jamie O’Hanlon, Avid Partners, explores tried and tested principles of effective cash flow management to help your business maintain a positive cash position in the difficult months ahead.

Narrow Your Focus

For now, focus on a smaller window. We are preparing shorter-term cash flow models for our clients – forecasting over 13 weeks as opposed to the entire year. This narrow focus helps navigate short term challenges and uncertainties. Deal with what’s in front of you and schedule cash coming in and going out over this shorter cycle.

Manage Costs

Identify the key cost drivers within your business and review all items – fixed and variable costs. Depending on your business model and industry, it’s usually easier to cut variable costs, so tackle those first. For example, can you find a cheaper way to transport goods? In the medium to long term, think about how you can change fixed costs into variable ones e.g., contract manufacturing or third-party warehousing.  

Lean Thinking

Where possible, defer non-essential capital expenditure, minimise discretionary spend and question every cost. Make this part of your business culture however don’t just cut costs for the sake of it. Some can be delayed until the environment improves; others may be necessary to prepare your business for the rebound.

Debtor Management

Get cash into the business as soon as you can.  Establish a formal debtor management process.  Encourage payments upfront by accepting debit/credit cards or by offering discounts. Be aware of signs that a debtor may be in financial difficulties.

Supplier/Stock Management

Supplier relationships represent a flow of cash out of the business.  Identify those strategic supply relationships. Tighten stock management so that cash isn’t tied up in surplus stock, improve internal processes and look for opportunities to negotiate new arrangements such as stock-holding facilities with suppliers.

Know Your Numbers

Debtor days, creditor days, stock days, debt to equity ratio – managing these numbers will put you in better control, improve your ability to keep cash in your business and, help raise funds if needed.  Talk to your accountant. They will advise what the optimum numbers are for your industry/business and keep you on track.

Pivot

The pandemic many have put pressure on your revenue stream.  Think outside the box.  You have fixed assets you use to generate revenue. Can you change your bricks and mortar business to an online shop?  Necessity is often the mother of invention.

Stick to Your Promises

Know this is difficult right now however it’s so important that we all continue to honour our financial commitments.  Seek promises you can rely on and those promises are returned when we pay our suppliers, keeping that vital cash circulating in the economy.

Remember that a profitable business can fold due to a lack of cash however if you implement these steps to strengthen cash flow, your business will be in a much stronger position.

Good cash flow management is now a priority and an essential part of a business survival plan. If you are experiencing cash flow difficulties, talk to Jamie O’Hanlon and the team at Avid Partners to see how we can assist your business by establishing an effective, structured cash flow system.

Arrange a free consultation with us to talk through the specific aspects of your business and we will tailor a package to match your needs. Phone us on 0818 303087 or email us at info@avidpartners.ie.

This article was updated on 29 January, 2020.