We know as well as anyone that it’s been a whirlwind last couple of years as we emerge from the tail-end of the pandemic. What we’ve experienced is that many of our clients, in the wake of uncertain times, have had to be nimble with their approach to business. For example some clients have had to increase stock holdings due to shipping delays leading to an increase in capital requirements. In the midst of a possible market uncertainty, there is the possibility of these businesses ending up in a difficult position with more cash allocated to stock and the flow-on impacts if sales don’t continue on trend.
It’s important to recognise how the landscape in front of us is changing. While many clients are still seeing good financial outcomes and have survived the pandemic well, the market can easily change in the blink of an eye. Product-based businesses for example, might want to be wary when it comes to holding too much stock – the key point here is to make sure your stock best reflects consumer demand as much as possible. Service-based businesses on the other hand, need to be aware of a reduction in sales that may come with a recessionary market, and to be prepared.
If businesses don’t address strategic possibilities, then they run the risk of being ill-prepared in the face of a down-turn, and end up in a bad position with little or no cash. Cashflow is king has never been more important than at times like these.
So how to solve this issue? We’ve compiled a few of our top tips to help you out.
First and foremost, forecast cash-flow a good twelve months ahead and in doing so, prepare the business for a range of revenue scenarios that could arise, whether that be a 10%, 20% or even 30% reduction in revenue. Look at operating costs critically and review your profit and loss for some quick wins. It is absolutely crucial as a business owner to know the financial position of the business inside and out – only then can you truly be prepared for the downfalls.
Secondly, look at debt management. Debt management plays a key role in securing cash-flow in the long-term, but we know for many this can be an uncomfortable topic. Our suggestion? Keep it simple. Start by putting a system in place to consistently follow up with those who owe the business. Check – do you have terms of trade, and if so, is the business enforcing them and taking action when a breach occurs? This could be as simple as a phone call for example.
Linked to debt management is inventory management. Assets on the balance sheet that can be managed better and converted to cash can prepare you for tougher times. Has your inventory management become sloppy? For example, if you had inventory of $500,000 and annual cost of goods sold of $3,500,000, this equates to inventory days of 52 – not bad! If you could reduce inventory days by just 10 to 42 days, you would free up $97,000 of cash!
Next up, ensure you stay connected with trusted people so you can tackle potential brewing issues, and communicate if and when you need support. You’ll be surprised how easily a solution can be reached and who can help you out at the most challenging times.
Our final tip is a simple one – talk to the bank! Find out what reserves you have in place in the event of a downturn or otherwise, and know what is available to help see the business through the uncertain periods, and ultimately sleep better at night!
At PKF Kendons, it’s our job to support our clients, through good times and bad, with the ultimate goal being to put our clients on the path to success. In our regular Financial Awareness sessions, a PKF Kendons advisor can work with you to look at your business in depth and teach you how to understand the financial implications of every business-making decision, with the end goal being to better manage cashflow in the long run. We can meet with you on a regular basis to discuss the results and help you learn how to produce your own financial reports and how to stay on track. We know that being a business owner can often feel a bit like being a lone ranger, and so we’re here to support you and guide you through it. Don’t hesitate to get in touch with PKF Kendons to arrange a Financial Awareness session on 04 566 4399 or to have a chat about how we can help you more generally.