Cash Flow Planning in Difficult Financial Times
For many business owners, sitting back and watching their bank balances rise is a less common occurrence. Management or forecasting of cash flow is now a planning imperative in difficult financial times.
As a founder and CEO of Heighten Accountants, I have witnessed the difficult financial times – whether caused by a credit crunch, recession, COVID, Brexit, supply issues, lockdown or anything else have played their part to depress economic activity; some business sectors more so than others. The hard times come with threats as well as opportunities. I have written this article as a guide to smart business owners on how to turn these threats into opportunities.
- The threat is threefold
- The opportunity
- Heighten recommended strategy for your business
- Magic formula
1. The threat is threefold
As a smart business owner, you cannot ignore the need to plan cash flow. At Heighten Accountants we help our clients in projecting forward the likely cash position of their businesses based on real-time trading expectations. As you may know, the threat could be threefold in difficult financial times; your cashflow shortage can happen if your clients don’t pay you on time, or sometimes they won’t pay you at all. Some clients may leave you. You may also give in to the temptation to quote low prices in order to win new clients.
2. The opportunity
The first response when identifying a threat is typically a mix of negative emotions for a mediocre business owner but smart people think and plan differently. They do not panic but analyse the threat, bring and encourage their teams to brainstorm the next steps and plan the opportunity strategy.
You need to be aware that difficult times will lead to three main changes in consumers’ behaviours. There will be some of your existing clients who need more help than before from you to cope with the issues caused by difficult times. Some businesses will actively look around for a better service or product and some businesses will actively look around for a low-price solution. As a result, there will be more underlying and, in some cases, latent, demand for help from you.
3. Heighten recommended strategy for your business
At Heighten Accountants, we believe being proactive with clients is fundamentally important. It is our moral obligation, as professional business owners to help our clients weather the storm of any financial crisis. Based on the above-mentioned opportunities, your strategy should be to protect your existing clients first. What they most want is proactivity and better solutions to the problems created by difficult times.
Prospects who want a better service as your competitors could not provide them should also be included in your plan. Use the fact that you are doing all of the right things for clients to help you turn these kinds of prospects into clients too.
We recommend not to actively market the prospects who are looking for a cheaper service or product. They swallow up your precious time and resources, leaving no slack for more important clients or tasks. They depress your profits and cash flow. And very often you will lose them as quickly as you won them when an even cheaper alternative comes along. If any accidentally contact you, refer them immediately to another business so that they become a rival’s problem and not yours!
4. Magic formula
Turning threats into opportunities will ease your cash flow as your existing clients are paying you more, not leaving you and the right prospects are also coming through the door. A ‘Key Improvement Possibility Report’ should be part of your planning. This report helps in strengthening your cash flow, reviewing debtor collection policies and systems, getting paid quicker by direct debit and standing orders, improving profit margins using a One Page Plan, and suggesting the most relevant of the high-impact tax planning recommendations. Cash flow planning should be a must-do activity in your weekly or monthly agenda. It is only by undertaking this process that you will reveal if, when and for what period you will be approaching the limits of your cash reserves.
If you do not have an action plan for dealing with the foreseeable difficult financial times, we can help you in developing or improving your action plan given that “cash is king” in the harder times. Please Contact Us if you would like to carry out a diagnostic review of your key options for strengthening your cash flow so that you can weather the storm. Call Us now so we can help you manage this process.