In the past four to six months, almost half of my clients have suffered some kind of economic downturn. For some, this is seasonal – just that time of year for it. For others, there are outside factors that have affected their business. For all of them though, it has caused a crimp in their cash flow…. A crimp that could have been avoided.
For business owners that have started to see a slowdown in their work and cash flow, or those that have seasonal fluctuations, there are three key things they can do to alleviate the stress this causes.
Budget. A budget helps you plan in advance how much you want to spend on items or activities. An overall business budget helps you plan for each cost center or activity for your business. Monitoring this budget on a regular (usually monthly) basis will help you make sure your costs are staying in line with what you planned, and will help you curtail spending if you see it is getting out of hand.
Forecast. Like a budget, a forecast helps you plan your spending. For a business in a serious cash crunch, a 6-week forecast can help you plan your spending for the immediate future. You can see when you can expect to get paid for your work, and lay out your bills on a schedule to match your payments with available cash. In conjunction with an annual budget, a 12-month forecast will help you plan ahead. Say you make a yearly insurance payment, or the majority of your yearly income comes in one month. A forecast will help you plan your spending around your income, or help you plan out what to spend when throughout the year.
One additional thing to note is that a budget and forecast can be very useful tools in securing outside funding during slow times. A lender will not lend if they cannot see that you have the ability to repay the loan. A well-prepared, well thought-out budget and forecast will show the lender that you will be able to repay the money they lend you. In some instances, a budget and forecast prepared BEFORE you need the money will help you secure a line of credit or a loan at a much lower interest rate than when you are desperate for the money and will take whatever is available.
Key Performance Indicator (KPI) Report. A KPI report is so useful in so many ways, and very few businesses have heard of it, let alone use it. A KPI report basically helps you track whatever is important to you at that moment in time. You can develop metrics for monitoring client satisfaction, average days to receiving payment, average days to paying bills, average cash flow…. Anything. A KPI report helps those in a cash crisis to monitor those issues and help resolve them. Say you have customers that pay on account. You may find that your average days to collection is 45-60. Shortening that to 30-35 will make a great improvement to your cash flow. You might see that because your average days to collection is so long, your days to pay a bill due one of your vendors could be 60-90, and thus you are incurring heavy finance charges. You can reduce that number, which will help improve your cash on hand. Maybe working to improve customer satisfaction will increase your customer base, generating more income overall. Lots of metrics can be measured to help you increase your cash flow, and get through the crisis.
If you are interested to see how any of these can help your business, shoot me an e-mail at firstname.lastname@example.org or call 949.478.3329.
Let me know if I can help you in any way, business or beyond. If you have any friends or associates that can use our services, please call me with their names. I’ll treat them just as I have treated you. Just let me know.