How to Manage Cash Flow During Uncertain Times

The cost of living crisis, economic pressures and continuing to recover from the effects of the pandemic has thrown the world into (further) uncertainty. Which is why it's vital that small business owners take charge of their cash flow now.

Cash flow is the lifeblood of any business. When cash flow is positive, the business thrives. When it's negative for a prolonged period of time, the business struggles or may even fail. In this uncertain climate, it's more important than ever for business owners to manage their cash flow effectively.

Why Cash Flow Matters

Small business owners need to be acutely aware of their cash flow situation at all times. 

Cash flow is not simply a matter of accounting; it's a measure of how healthy your business is. In good times, a positive cash flow means you have the resources to invest in your company and grow it. In bad times, a negative cash flow may mean you will struggle to cover your expenses and may need to borrow.

Your cash flow is a key indicator of your company's financial health. This can fluctuate due to several factors, including strong or slow sales, high overhead costs, staff turnover or paying too much for inventory.

It's also important to remember that a positive cash flow doesn't always mean you're making money. It simply means you have more cash coming in than going out. Likewise, a negative cash flow doesn't mean you're losing money. It could simply mean your outgoings are greater than your revenue.

Let's dive into how you can better manage your cash flow during these periods of uncertainty.

Put Financing in Place BEFORE You Need It

It's always a good idea to have financing in place well before you need it. This means having a line of credit or loan available so you can cover your expenses in case business slows down or you experience a negative cash flow period.

This is especially important during uncertain times when the future is unpredictable. You don't want to be forced to take  out a high-interest loan or use your credit cards to cover expenses. If you have financing in place, you'll be able to weather the storm without putting yourself in debt.

There are several types of financing available, so business owners should research their options and find one that best suits their needs. Ask your accountant if they can help you to find a loan or line of credit that meets your specific needs. At Lagom Finance, we can recommend trusted advisors to support you with this.

Reduce Overhead Costs Now

Another way to conserve cash is to reduce your overhead costs. This means cutting back on expenses that are not essential to your business operations. For example, you may want to reduce advertising spend, subscriptions, travel expenses, or office rental and operations costs. Now is the time to take a close look at your budget and see where you can cut back. Even small reductions in overheads can make a big difference in your cash flow.

 Streamline and Automate Processes

You can also conserve cash by streamlining your processes and automating where possible. This means eliminating any unnecessary steps in your process and automating time-consuming manual tasks. For example, you may want to automate your invoicing, customer relationship management, or use software to manage your inventory if you have physical product. Streamlining your processes will help you to save time and money whilst increasing productivity.

With uncertain times ahead, it's more important than ever for business owners to manage their cash flow wisely. By taking the steps listed above, you can conserve cash and ensure your business is prepared for whatever the future may hold.