One of the core pieces of advice that GCS offers its clients is that cash flow is a prime indicator of a business’s health. Address this, and other pieces of the puzzle (when it comes to finding a solution for your financial distress) will eventually emerge for you to find the appropriate place for them.
However, it can be challenging for distressed business leaders to see the wood for the trees when they have never been in this situation before and are emotionally drained.
Forbes recently published an article in which some of the world’s top business executives share their insights into effective cash flow management.
Decrease liabilities and improve assets
To improve cash flow, decrease your liabilities and improve your assets. Reducing the costs and expenses is a target even when your business is doing well.
The key is to improve your cash flows. Check your liabilities and turn them into assets that generate cash flows. You can sell your unused lands or vehicles to generate short-term cash flows. Meanwhile make promotions on sales to add new short-term clients. – Burak Arkun, Tailwind Airlines.
Conduct a bottoms-up budget review
I find that if you do a bottoms-up budget process with monthly forecast reviews, you can identify unnecessary expenses that can be immediately reduced by terminating no longer required vendor contracts.
Also, these monthly meetings help determine which lower-priority projects can be delayed, leading to a slower ramp-up of vendor payments which generates in-year expense savings. – Nick McGuire, DataLink Software.
Open more payment channels
Opening more payment channels and honouring buyer payment preferences is always a smart strategy to increase cash flow.
Suppliers with an automated credit card acceptance strategy, for example, receive guaranteed funds while offering their buyers rebates and float. Overall, automated AR processes offer customers the digital payment channels they prefer, speeding cash flow and reducing payments lag. – Justin Main, Billtrust.
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Automate payments and invoicing systems
When a supplier isn’t paid on time, B2B companies shouldn’t assume there is an issue with the payment but rather look earlier in the order-to-cash process.
This helps uncover issues that stem from when the interaction with the buyer first began and an invoice was created, such as inputting the wrong price. Automated payments and invoicing systems can remove complexity and improve cash flow. – Brandon Spear, TreviPay.
Leverage refinancing assets
Business leaders can increase their revenue while minimising associated costs, maintaining comprehensive cash flow reports and adopting financial models and forecasting tools to predict future cash flows.
I personally leverage refinancing assets to generate working capital for our business. A clear example will be selling a used company car to staff. It is simply a win-win for all parties involved. – Tosin Osunkoya, Comercio Partners Limited.
Use strategic forecasting
Leaders can optimise cash flow and working capital management through strategic forecasting, efficient receivables and payables management, cost control and leveraging technology.
By prioritising these practices, they pave the path to financial stability and growth. – Michael Foguth, Foguth Financial Group.
Streamline inventory management
Monitoring cash flow and working capital is critical to ensuring optimal financial operations for an organisation.
There are myriad factors, but focusing on streamlining inventory management, optimising capital expenditures, and conducting regular financial analysis, including better vendor management, will be key. Leaders would need to tailor strategies according to the organisation’s growth vision. – Parijat Banerjee, LatentView Analytics.
Maintain an updated cash flow plan
I recommend business owners maintain an updated cash flow management plan. Scenario planning will help determine what is needed to move forward today and earmark where funds may be needed down the road.
A clear financial forecast, combined with a trusted relationship with a business banker or financial advisor, will help owners make the right decision for their business. – Jenn Flynn, Small Business Bank at Capital One.
Negotiate payment terms with vendors
Developing projections for future cash flows and making informed decisions about investments and expenses based on this information is the most impactful cash flow management skill to develop.
As a company, we emphasise negotiating payment terms with vendors to optimise cash flow. By carefully managing payment terms, we avoid cash shortages and take advantage of discounts for early payment. – Elie Nour, NOUR PRIVATE WEALTH.
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Understand cash required
Cash flow is quintessential to growth. Managing cash flow is best accomplished by understanding the cash required, net of any debt proceeds.
Building cash metrics and continually reviewing performance creates synergies. It is possible to grow out of business. Establishing cash goals and tracking performance while knowing the total cash needed will help businesses chart courses or courses correctly. – Matthew Goldston, ABIP Advisors.
Improve customer account management
In today’s volatile market environment, leaders need to remain laser-focused on business relationships.
Customer account management is crucial, and direct communications can avoid delayed payments. At the same time, working closely with key vendors and managing outgoing payments based on priority is a way to maintain cash flow steady. – Omar Choucair, Trintech.
Proactively manage inventory
Executives can optimise working capital management by proactively managing inventory, negotiating payment terms and improving receivables.
Effective communication with stakeholders, risk management and prudent financial planning can also ensure a sustainable cash flow position. Also, they should consider the ways in which technology may be able to aid in automation and cost reduction. – Jeffrey Bartel, Hamptons Group, LLC.
Restructure contingency plans
Execute definitive plans with targeted metrics for each area of the business to maximise its operating performance.
This should lead to greater balance sheet strength. Structure contingency plans so that variable expenses can be reduced quickly if the top line suffers. Structure action plans to grow expenses only if targeted top-line metrics are achieved, and forecasted results are attainable. – David Samuels, DrFirst, Inc.
Speak with your vendors
Don’t be afraid to talk terms with your vendors. Ask if they can extend terms beyond their standards, like net 45 or net 60, or see if they are open to monthly or quarterly payments instead of upfront payments.
You may have to trade off in price, but the trade-off may still be cheaper than other types of financing in the market. – Michelle DeBella, JumpCloud.
Fit for purpose
It is important to note that every company is different, and it will experience different circumstances that cause it to become financially distressed.
This means that a tailored approach will need to be taken to cash flow management. It may well be prudent for companies to use one of the tactics above and see results. However, most situations will require a blend of tactics. Make an appointment to chat with a business specialist or a turnaround specialist to tailor a solution that is fit for purpose.
