Keep up your cashflow during a downturn

Entrepreneurs’ mantra ‘cash is king’ is never more true than during a downturn, when your margins will most likely be tighter than usual. Business advice service Business Link has this advice to keep your cash flowing:

  • Carry out a business healthcheck to review your current activities
    This should take things like customer satisfaction levels, suppliers and their performance, products and services into account, as well as assets like your people, skills base and processes, procedures and equipment. Make sure you weigh them up against the competition.
  • Keep an eye on your cash
    Making sure you get paid on time will help keep your cashflow up – if you’ve supplied the goods or services, it’s your money and should be in the bank account. Likewise, making sure your suppliers are paid on time will help keep your entire supply chain in the black. Reducing your stock levels in times of difficulty will also free up spare cash.
  • Understand your finances
    What is your break-even point? How much of a cushion do you have? If sales or contracts don’t make you much profit, even a small increase in costs or a tiny drop in turnover could push your business into the red.
    Monitor cash in and out of your business on a daily or weekly basis – don’t delay it until your VAT Returns and annual accounts. Make good use of your bookkeeping or accounting software to generate reports that tell you how the business is performing now. Or start your own spreadsheet, using a pen and paper if that suits you best.
  • Know your gross margins
    Avoid chasing sales with a low profit margin, if the same effort will secure sales with higher profits. So, calculate the profit for every one of your products and focus your efforts wisely.
  • Be realistic about what you can and can’t change
    Prepare an honest forecast of sales, profit and cashflow, and be brutal with yourself about what needs to change. Do this regularly, so you always know what’s going on, and can respond quickly to possible problems.

For more advice, go to businesslink.gov.uk/creditcrunch or call them on 0845 600 9 006.