Small businesses are particularly vulnerable in tough economic times.
When sales are slow, there are still overheads and salaries that need to be sorted. Pre-planning and being proactive can help you weather tighter economic periods and allow you to continue to thrive.
Why cashflow planning matters
One of the best strategies you can put in place is to prepare a simple 60-day rolling cashflow plan. This tracks your expected income and expenses over the next two months and is updated weekly. Having an idea ahead of time when the cash pinch points will come allows you to plan how you will get through them.
No one wants to be left having to make that last-minute call to the bank for an emergency extension to the overdraft so you can make today’s payroll. That call will give the bank no confidence in your business as they have plenty of other clients who don’t get surprised by cash pinch points.
Deal with potential shortfalls proactively
If there’s even a possibility that there could be a shortfall, it’s essential to meet this head-on. Whether this means talking to your supplier or creditors to figure out an arrangement, or compromising on other business outgoings, you must make a plan to ensure that the business, or your staff, won’t suffer.
Maybe the right call is a temporary bank overdraft extension. Choosing to borrow money from the IRD by not paying them on time is something we see businesses do from time to time—but it is not recommended. For one, the IRD is an expensive source of funds with high interest rates and penalties.
Tips to minimise cashflow stress
Invoice early
Send any invoices as soon as you can—don’t wait for the end of the month. Invoice in advance if possible—taking deposits or progress fees are ideal.
Consider whether you have any regular clients or customers that you could offer a retainer or similar deal to if they book services or make a purchase from you in advance.
Chase payments
Use this opportunity to chase up any outstanding payments. Strong communication and relationships matter—talk to clients and chase invoices.
Is your Xero system sending automatic reminders for unpaid bills? It should be. Our team runs free Xero support sessions to answer your questions.
Tighten your credit terms
Can you tighten up your credit terms? There are many businesses who have moved away from 20th of the month following, as it often leads to long delays in getting paid. Instead, consider implementing shorter payment timeframes—such as 7 or 14 days from invoice. This helps improve your cashflow and reduces the chance of clients forgetting or delaying payment.
Talk to suppliers
A little honesty can go a long way. A simple, upfront conversation can lead to temporary terms that ease pressure without harming long-term relationships. Perhaps they can extend a line of credit for your payments to them. In most cases, a good supplier would rather offer a little flexibility to keep an ongoing business relationship.
Review inventory
Can you find a cheaper supplier locally to avoid shipping costs or discuss alternative products that will allow you to reduce expenses? Even small changes to how you manage your inventory can lead to significant savings—especially during tough economic periods.
Review your costs
It’s also a good idea to do a general review of expenses. Business costs can creep up, and it’s a great idea to make time to check on your expenses regularly, no matter what your financial situation is.
Review all of your regular payments and subscriptions as well as upcoming costs. There may be travel, functions or purchases which you can decide on an alternative approach to.
Make a plan—We can help
If you’d like help with building a short-term rolling cashflow plan—or any kind of business planning—reach out to us. Many of our most successful clients use this approach, and it provides real peace of mind. Being able to spot cash flow potholes before you hit them makes all the difference. Let’s make a plan together that keeps your business on track, even when times are tough.
The comments in this article are of a general nature and should not be relied on for specific cases, where readers should seek professional advice.