If your business has taken a down-turn recently, you are certainly not alone. This white paper is packed full of ideas for generating positive cash flow, or holding onto the cash you have.
If demand for your products and services has taken a dramatic down-turn in the last couple of weeks, you will not be alone. For those businesses who are still able to trade, supply chains have been hit by reduced capacity, shortages, and a drop in consumer confidence. This means less money coming in, and more stress for the business owner. You may be worried about having to lay people off, or not being able to meet your financial commitments or to support your family. In the worst case you may even be worried about whether you will have to close your business and lose everything that you have worked so hard for.
There is government support out there, but the sheer demand for assistance is overwhelming, and it may take time before grant funding or loans actually reach your bank account. You may be worried that you are running out of time.
Even in the good times, it is important to manage your cash flow, but when the market takes a down-turn it is more important than ever. So what can you do that you haven’t done already?
1. Know where you are
The first step is to create a detailed cash flow forecast for your business. What do you have? What are you expecting to come in? and what are you committed to paying out? This is going to be the most important document in your business for the next three months, and you need to review it daily. Having a clear understanding of the situation makes it easier to plan, and to take the most appropriate course of action.
2. Check your eligibility for Government Help
There are several schemes which are available to businesses in Wales at the moment, and you will probably have heard from your accountant, but if not, start with the Business Wales Fund Checker.
For larger firms, the Welsh Assembly Government is expecting you to have exhausted “normal” avenues including business rate relief and loan finance (within reason) before applying for grants.
Check your eligibility for R&D Tax credits – you would be surprised what can be included in the claim, and they are payable even if your business is loss-making. Mustard Advisers can recommend a trusted adviser to help you with this process.
Check you have claimed your capital allowances – this is a cash tax repayment you are entitled to – again, we can recommend a trusted adviser who has a great success record in this area.
It might be obvious, but make sure that you raise invoices promptly for the work that you are doing.
4. Keep on top of debt collection
When you issue an invoice, ask your customer whether there is going to be any reason why the invoice might not be paid on time. Check your bank account daily to make sure that invoices are being paid when they are due. If a payment is late, contact the customer straight away – the sooner you know there is going to be a problem, the better chance you have of being able to deal with it.
If this makes you feel uncomfortable, or you don’t think you have the time, consider out-sourcing your credit control to an agency. Ideally, you should look for one that can act as a debt collector as well, so that they can take appropriate action if your debtors are not paying on time.
5. Manage your credit risk
When you take on a new order, make sure that the customer has the ability to pay you when the payment is due. Even if the customer has been a good payer until now, they are in the same situation as you, and may be feeling the pinch. You don’t want your business to be the one that they don’t pay. Don’t underestimate the human factor in all of this – if you have a good relationship with your customers it is going to be emotionally much more difficult for them to let you down.
If the sums of money are significant, you may want to consider credit insurance.
6. Review your credit terms
If you offer customers extended credit terms review why they need time to pay. Could you ask for a deposit up front for materials purchased? Could you ask them to pay there and then, as you complete the work? Could you ask them for a direct debit arrangement?
7. Control your costs
It may seem obvious, but it is important to spend wisely rather than slash away at costs until there is nothing left.
For most businesses, your suppliers are important to the quality of the product or service you provide. You have invested time and money in developing a good relationship with them. They work the way you want to work, and what they supply you is just right for you. Whilst there are commentators out there encouraging businesses to ask for discounts and withhold payment, you have a responsibility to understand the impact of your actions on your suppliers’ businesses too. Think about the impact on your business if your key suppliers don’t survive.
8. Review your regular payments
Now is a good time to review your regular payments and your subscriptions – which ones are essential, and which are “nice to have”. Remember, the key is to invest wisely – don’t just cut costs, look at the value you are getting from the service and the longer term impact if you stop.
It may be difficult for some of your service providers to discount their services, after all, they are in the same position as you are. On the other hand, they may be willing to provide additional service for the same fees. If they have seen a down-turn in demand, they may have spare capacity, and in the long term, this may be of more benefit to your business than simply cutting costs.
Landlords, lenders, local authorities and utility companies may all be willing to consider a payment holiday or deferring part of the payment for a period of time.
9. Review your payment terms
Contact your biggest suppliers and ask for an extension on payment terms, or to defer payment. Some suppliers will be sitting on stock that they need to keep moving, and may even be prepared to offer a discount on future orders.
10. Manage your inventory
Money tied up in stock is cash that you could be using to pay your team. Look carefully at your inventory management policies and set out a programme to reduce stock levels and defer deliveries.
11. Manage your people
This is a challenging time for everyone in your business, and a future blog will address how you retain your best people and keep them on side during the down-turn.
When looking at your cash flow, you have a number of options to consider. The Coronavirus Job Protection Scheme is unprecedented, and if there is not enough revenue-earning work for your team right now, you can furlough your employees. This is one way of holding on to your key staff whilst reducing your employment costs.
If you are unable to furlough them but want to keep trading, they may be willing to work shorter hours in exchange for a corresponding reduction in pay.
12. Manage your processes
If you are always too busy to look at how you do things, now is a great time to make your processes more efficient, and to eliminate waste. The benefits of systemising your business are more than just cost-saving. The steps you take now will make your business more valuable, and enable you to have more time and more fun when business starts to pick up again.
13. Understand your Customers
Now more than ever, you need to be close to your customers and prospects, and to understand what their concerns are, particularly if that is stopping them from buying from you. The more you understand their needs and concerns, the better chance you have of coming up with a product, service, or payment system that will make it easy to buy from you.
14. Hold your Nerve
The price you charge reflects the value you add to your customer, and at your current pricing levels, there is an understanding that you are providing value for money, or they would not have bought from you in the first place.
You should only consider reducing your prices if the value you add has also reduced. If you reduce your prices now, it may introduce an element of mistrust – if you can afford to cut your prices, were you over-charging before? If you discount now, it will be challenging to raise your prices again once this is all over.
If affordability is likely to be an issue for your customers, you could consider phased payments to ease their cash flow, or look at ways you can over-service them at minimal cost to you.
15. Review your revenue model
If your income is predominantly payment on receipt of goods or services, consider whether moving to a subscription model might help secure more sales. This type of model will help with your cash flow, but also with the cash flow for your customers.
Could you offer your customers a discount for paying some or all of the cost up front? Perhaps you could offer a loyalty card or gift card scheme.
16. Can you offer a money-back guarantee or free trial?
Some customers may be concerned about risk and not want to commit to any expenditure in the short term. If your business is mainly overhead driven, you might want to look at offering a free 3-month trial.
Could you guarantee to buy back the product if something went wrong in the future? Can you take more of a risk with warranties than you would do normally?
17. Innovate, innovate, and innovate some more
Look at the resources you have available – skills, knowledge, plant and equipment – is there a product or service that you can offer during the lock-down that is not currently part of your portfolio? If there is some investment involved, now is a great time to apply for investment grants because fewer businesses are investing in research and development.
18. Invest in marketing
The companies that do well in this recession will be the companies that remain front of mind for their customers when restrictions are lifted, and are agile enough to respond quickly. Whilst you may want to reduce your marketing costs, make sure that you continue to invest in those activities which generate the best return on your investment.
19. Keep your pipeline full
You might be in a position where you cannot serve your customers at the moment, but that doesn’t mean that you can’t quote for work, or prepare proposals so that you are poised to start work as soon as the restrictions are lifted.
20. Take stock of where you are and build for the future
For many businesses, the phones have definitely gone quiet. This is the ideal time to review your vision for the company, identify opportunities that will be available when restrictions are lifted, and position your business to advantage of those opportunities.
If you would like help to take stock, to look at how to reduce your costs or build your business for the future, Mustard Advisers can help. We can take an objective view of your business, challenge your assumptions, and broaden your horizons. We will agree an action plan with you, and hold you to account, so that you will have more time, more money, and more fun.
21. Contact Mustard Advisers
For further information, get in touch with Mustard via email by contacting firstname.lastname@example.org, or call 02921 111 262 and ask for an adviser to call you back.