Helping you get back on track: Cash-flow management

After the turbulent year that was 2020, many businesses had their hopes pinned on 2021 being the year that would see the economy bounce back and business (and life, in general) return to normal.

As we reach the middle of the year, a large number of businesses are seeing activity levels continuing to increase; however, one of the biggest challenges for many businesses now that activity levels are starting to return to the sort of levels seen pre-pandemic, is cash-flow management.

Cash-flow management will be a term very familiar to many business owners and it is an area that needs constant monitoring now and looking forwards. Businesses need to understand their cash-flow cycle and have visibility of the quantum and timing of any cash-flow imbalances.

• As a priority, make sure that you have your costs under control.
• Categorise your overheads into those that are vital to business operations and those that are discretionary or even luxuries. Question the latter and do they give you a return or a benefit?
• With the furlough scheme coming to an end in September (and employer contributions beginning again from 1 July), many businesses have been closely scrutinising their ongoing payroll costs and may still need to make some tough decisions about people’s roles going forward.
• Forecast, forecast, forecast! Try predicting what the future cash looks like to the best of your ability. Cash-flow forecasting can be as complex or as simple as you need it to be. One page or several pages, as long as it tells you what you need to know; with the forecasted level of activity what will the bank balance look like after taking into consideration predicted receipts and payments? A number of commentators talk about a thirteen-week review period. I agree with this, but feel that consideration should also be given to weekly and annual forecasting too. With the information that you have at present, what is your bank balance predicted to be at the end of the week, at the end of three months or even at the end of the year?
• Having considered your forecasted cash-flow requirements, do you have the correct level of funding in place? Talk to your advisors including your bank manager, who will be able to walk you through this thought process. It’s important that the right type of funding is in place in terms of structure and of course, pricing! Simply having an overdraft is not always the answer.
• The government’s Recovery Loan Scheme is still available if you do need to secure additional funding. You can read my thoughts and advice on making a RLS application here, alongside other advice and options for funding your business.

Many business owners have different experiences and thoughts when it comes to cash-flow management, but these are the areas I would urge you to consider now:

• Do you understand your cash cycle? Receipts coming in through to payments made. Are there any areas in this cycle that need to be tweaked in terms of timings? Is the gap too big between the direct costs that you incur to when you get paid?
• Be on top of your credit control. Keep communicating with those businesses that owe you money.
• Question every form of non-essential spend. What cash benefit does this bring to the business?
• Make sure that you undertake some form of cash-flow monitoring and forecasting. Ask for help if you need it.
• Talk to your bank and advisors – maintain and enhance those relationships.
• Communication is the key, internally and externally!

There’s more advice and tips on cash-flow, funding and forecasting in this episode of our 2 + 2 podcast.

Myself and the team at Inspire are here to support you – do get in touch.