7 Strategies for Managing Your Cash Flow Proactively in Times of Fiscal Uncertainty

Shutterstock_1935739312

It’s a volatile, uncertain time for business owners. High inflation, rising interest rates, the threat of recession, supply chain constraints, and geopolitical risks all make for an ambiguous, ever-changing environment in which to run a business. Looking ahead, it’s unclear how much consumer or business spending might contract or how much the cost of goods and labor might further increase.

In this difficult environment, you need to ensure you can keep your operation running smoothly and maintain a sound financial footing. And that demands positive cash flow.

Without positive cash flow, you can’t cover payroll, raw materials, inventory, equipment, and other expenses that are critical to your operation. But at times of uncertainty and volatility, you can easily find your cash flow at risk, whether from a slowdown in revenue, an uptick in expenses, or difficulty collecting payment from customers.

The following 7 strategies can help you manage your cash flow proactively in these fiscally uncertain times, ensuring you have the funds to not only stay afloat, but thrive.

1. Know your current and projected cash flow position

You can’t shore up your cash flow unless you know where you stand today and what to expect tomorrow. That means you need an accurate cash flow statement for the current operating period and a projected cash flow analysis for the short term (approximately 6 to 12 months out). A projected cash flow will help you spot a looming problem and provide the insights to make the most informed decisions about where to adjust to keep your cash flowing, based on your financial health. For instance, your cash flow projection might point to a need to adjust your operating budget to reduce costs in the short term or your accounts payables policy may be too lenient.

2. Reduce expenses thoughtfully and strategically

Cutting costs is always a key consideration for improving your cash flow, especially when inflation is rising. But it’s important not to make cuts that reduce the quality of your products and services or impair your ability to operate effectively. Perhaps you can negotiate better pricing with the suppliers you do a large volume of business with or switch to a different supplier that offers comparable quality at a lower cost. You might be able to swap a raw material for a less expensive option without impacting the quality of your consumer packaged goods (CPG). It’s also helpful to assess your process for evaluating new capital expenditures to determine whether it’s rigorous enough. And of course, now is a good time to review your budget and identify any discretionary spending that can be put on hold without hampering the business.

3. Get a better handle on your inventory

Tying up too much cash in inventory is never prudent, but it’s especially risky at times of fiscal uncertainty. If you’re not already using inventory management software to get a good handle on your inventory position and make the most informed decisions about when and what to stock, now is the right time to add that functionality. If you find you have inventory that is obsolete or will expire, it may be best to discount it while it still has value or liquidate it to get it off your books and reduce your tax liability. It’s also important to ensure you have robust sales forecasting tools that provide the insight you need to adjust inventory to changing customer buying patterns.

4. Keep your accounts receivable from aging

The more volatile the economy, the more likely your customers will be under financial stress and potentially fall behind on payment. So, while your revenue might look great on paper, your cash flow might suffer from a large accounts receivable balance. To avoid that problem, always invoice as soon as possible and don’t allow invoices to age. Your accounting team should follow up with customers as soon as an invoice becomes past due. To encourage timely payment, offer a small discount for shorter payment terms or assess a fee for late payments. If a customer is unable to pay an invoice, consider accepting a partial payment to keep the cash flowing.

5. Manage your accounts payable creatively

Just as you’re trying to bring cash in faster, you should avoid paying out that cash any sooner than you need to. Of course, you want to pay your bills on time to avoid late fees or the risk that a vendor will stop shipping the raw materials or other goods you need to meet your obligations to customers. But you may be able to negotiate longer payment terms or secure a payment plan, especially for suppliers who aren’t as critical to your operations. It’s also a good idea to review your accounting processes to ensure you aren’t paying invoices before they are due.

6. Revisit your pricing

Many factors impact how you price your products and services, and some have greater price elasticity than others. However, with inflation running high, it may be time to revisit your pricing relative to your competition and your cost of goods sold. If you haven’t raised your prices in a while, you might find that you are inadvertently selling below market price. By conducting a pricing analysis, you can determine if you can boost your revenue (and cash flow) by adjusting your prices in a way that doesn’t reduce demand.

7. Consider securing a line of credit

The best time to obtain financing is before you need it, when your business finances are still strong. If you don’t already have a line of credit, now may be the right time to secure one. It’s a useful safety net in the event your cash flow tightens and you need short-term help meeting your payroll or other expenses. Just be sure to use your line of credit judiciously, so you don’t take on more debt than necessary.

How Simple Startup Can Help

Simple Startup is the trusted partner that many small-and-mid-sized businesses turn to for help improving their cash flow position, ensuring they have the funds to keep operating smoothly, and invest in growth. We have extensive experience working with CPG businesses—including beauty, food and beverage, and hard goods companies—as well as technology, professional services, and life sciences businesses. 

Our Financial Planning & Analysis services equip you with short- and long-term strategies for achieving your goals, providing the insights you need to make the best decisions about forecasting, cash flow management, and resource allocation. For instance, Simple Startup offers strategic cash management services that help you understand how cash is moving in and out of your business—and we help you identify trends, challenges, and opportunities to improve your cash flow.

To learn how we can help your business manage your cash flow proactively in these fiscally uncertain times, contact Simple Startup today.

About Lorne Noble

Lorne loves finance so you don’t have to (seriously, he plays with Excel sheets on vacation)! He spent 12 years in corporate London as an investment analyst then made the jump to Boulder, Colorado to act as finance mentor to high impact companies at The Unreasonable Institute, Girl Effect Accelerator and Singularity University. He has an MBA from IE business school in Madrid, Spain.

If You Liked This Article You Might Like:

Jeremy-thomas-fo7bkvgetgq-unsplash

Understanding Your Balance Sheet

What is a Balance Sheet? This blog posts kicks off a new series on financial statements, namely the balance sheet, the income statement, and the

Pexels-august-de-richelieu-4427506

Do You Need a Controller or a CFO?

Controller Vs. Chief Financial Officer Just like a company’s financial strategies evolve at every stage of growth, its requirements for financial oversight and controls evolve