How To Get Out Of A Cashflow Crisis

How To Get Out Of A Cashflow Crisis
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Paul Roach (pictured below) is a business strategist and coach who has worked with hundreds of SMEs across many industries to supercharge their cashflow. Roach is also author of the book Smarter Business Stronger Cashflow. In this guest post, Roach gives his top tips when the cash taps start to be turned off…

Cashflow is like a train trip, you can be charging full steam ahead, stuck at the station not going anywhere or heading in the wrong way altogether. In business, knowing what direction you are travelling gives you a much better chance of staying on track and getting to where you want to go. Many businesses do not make it, having missed the warning signs along the way. Their business become a train wreck because they did not hear the train’s horn, the noise it makes, they ignore the boom gates, flashing lights, and warning bells. How does this relate to business you may ask – mandatory Cashflow Forecasts, updated at least every week.

What happens when our business hits a challenge and our Cashflow becomes more problematic? We can generally handle a small drop in Cashflow for a short time, however if either one of these variables increases, we face a different challenge altogether. How then do we proactively and consistently work on improving our Cashflow to either avoid or get out of a crisis?

  1. Cashflow starts with you

Amongst the noise and stress, make sure you have a calm and focused headspace. Now more than ever, this is most important. Double down on self-care – meditation, exercise, diet, and personal time.

  1. Is there a Problem?

Assessing the status each week of our Cashflow, for the at least twelve weeks out, is a good starting point. What Cashflow we expect to come into our bank account and what Cashflow we expect to be going out. Making sure we add in any Government stimulus and we allow for deferral payment options if needed for Taxation, mortgages, and the like. Yes, I hear you, twelve weeks is a long time in this economy and level of uncertainty, however its far better to approximately right than exactly wrong.

  1. Act, not React

Hoping we are in a fortunate position of being Cashflow positive and being able to build for our future. We do not know how long this Pandemic will last, nor the impact on our economy as government stimulus moves in and out of play.

A more challenging position is where our Cashflow forecast shows a negative position moving forward. Let us dig deeper with this one to get out of the way of an on-coming potential train wreck.

  1. Hide and Seek

Remember that game when you were a child. Something was hidden, and you had to find it. Cashflow is much the same in your business. It hides in numerous places disguised as Debtors, Stock on the Shelf, and sitting idle as Work in Progress or surplus assets. Cashflow disappears out of sight of our Profit and Loss when we repay loans, Equipment Finance, and others. Our future drain on Cashflow is in Tax Liabilities, Employee Entitlements, impending Bad Debts, Obsolete Stock, and the like. Most businesses have some Cashflow hiding somewhere – seek and you shall find!

  1. Opportunities right in Front of us

I get asked often, how can I create Cashflow Fast? Whilst most business owners look to finding new customers, I get them to focus on their existing client base. What is their current sales mix by customer and what are the opportunities here? What is our pricing, level of discounting and is it appropriate for the current market? Given the changes to our world now, what impact have our supply chains suffered and have we reset our pricing and margins accordingly?

  1. What we may not see

Whilst pre-Covid 19 allowed us to make some mistakes in business and have some excess costs in there, that has all changed very quickly. Each dollar from every Overhead cost saved goes directly to your bottom line and eventually into your bank account. When was the last time you, as the business owner, critically reviewed this for your business? Follow the sequence through in order, what tasks can you Obliterate? If not Automate? If not De-Skill? If not, can they be Outsource or Delegated? We need some capacity for growth, however cut the fat before it clogs the heart.

  1. Where is my Business Future?

Do we need to wave the white flag and talk to an insolvency specialist? Are we in a downward trajectory hoping not to go under? Have we flat lined? Are we growing? Are we building Cashflow and looking for opportunity? Is our Cashflow reliant on Government stimulus? Businesses will be at varying stages of this transition based on their industry and what part of the Country they are in. Nothing is more certain than the need to keep vigilant, marketing intensely, delivering value to your customers and staying focused on current and future Cashflow opportunities.

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Paul Roach

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