Managing Cashflow When Times Are Tough

Given that demand is tightening up and the cost of being in business continues to rise, there’s never been a more important time to understand what strains and restraints exist within your cashflow and what resources are available to maximise cashflow so that you can achieve your business goals.

Small businesses are in the coal face of economic changes and consumer sentiment. We often see small businesses secured with a mortgage over their family home, or funded off the back of personal savings, and always with a vision to support their customers, family, and the family of those they employ.

Here are 3 steps you can take to improve your business’s cashflow and how we have helped our clients to implement improvements in their businesses:

1. Understand your immediate cashflow needs. Good cashflow planning starts with understanding the current demands. Preparing a short-term cashflow forecast allows you to see the ins and outs over the next 30-90 days, determine a breakeven cashflow position, and map out strategies to 1) manage, 2) refocus on key business drivers, and 3) relieve stress by providing a short-term roadmap.
This is also an important conversation starter to determine if the business needs additional funding. For example, we’ve helped our clients secure short-term financing solutions, from temporary overdraft extensions to term loans, in as little as a week due to holes identified in the short-term cashflow.
2. Stronger banking relationships. We often see small business owners either assume they can’t get a better deal at another bank or don’t want to risk their existing banking relationship despite receiving a lack of support for the business’s future goals. We have relationships across the major trading bank network and can help you to navigate those conversations with your existing bank. We also know what the banks want and can back your business story with numbers to support it, and the best place to start is with a three-way cashflow forecast.
3. Prepare a three-way cashflow forecast. The old saying goes that profit is vanity, and cash is king. A three-way forecast integrates your Profit and Loss budget with a Balance Sheet and Cashflow Statement typically forecast over a period of 1-2 years. This shows the direct impact of your profitability on the cashflow requirements of the business and provides a roadmap to identify vulnerabilities or opportunities. This helps you make decisions to improve or appropriately utilise cashflow.

Here are some examples and ways we have worked with clients to get different outcomes:

• Reduce interest costs: For one client, we were able to refinance term loans from various lenders, including high interest-rate debt (exceeding 15% p.a), to one consolidated term loan and reduce interest costs each month by over a third.
• Secure the right lending product: We secured a trade finance facility for an importer client to smooth the timing of cash receipts and payments.
• Schedule returns to shareholders: For another client, we determined a supported level of dividends and when the cashflow allowed for the physical payment, so shareholders could better plan their personal affairs.
• Maximise stock turnover: For a retail client, we provided support for the additional stock purchasing required ahead of the Christmas trading period.
• Plan the timing of tax payments: As part of the process, we look at how best to manage the timing of the tax we forecast will be owing, using tax pooling intermediaries to spread payments so that you don’t have lump sums due during periods that you have less cash available, or need your cash, such as our retail client above.