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Managing your money

Cashflow SOS: How can I manage cashflow in a recession?

Small businesses have taken a heavy blow during the pandemic, but they haven’t come to a complete standstill. From takeaway pints to virtual hair appointments, business owners have found new and creative ways to keep the cash flowing in.

But when it comes to cashflow, what you earn is only part of the equation. How quickly you get paid, what you spend and the amount you borrow are just as crucial. So, with more hard times ahead, it pays to build a 360 degree view of your cash.

Read on below for our step-by-step guide to managing cashflow during a recession. And if you haven’t already, make sure you check out the other articles in the series too:

  1. What is cashflow? And why is it important?
  2. What is a cashflow forecast?

1. Make a plan

Cashflow planning right now comes down to ‘what if….?’ questions like:

  • What if my biggest customers can’t pay me anymore?
  • What if I took out a government-backed loan?
  • What if I cut operating costs by renegotiating my lease?

To get an accurate view of your cash situation, it’s crucial to make sure your figures are up to date. If you haven’t reconciled your accounts in your Xero or QuickBooks recently, do that first. Once your numbers are reliable, then you can get on with planning.

It’s clear that Covid-19 workplace measures will continue to affect your business for many months to come. So planning for a range of different scenarios, including whether you can withstand the worst ones, is the place to start.

2. Consider a different approach

For some businesses that have had to close their doors, shifting to an entirely different model has been the only way to make money.

Take Top Cuvée, a restaurant and bar in London which relaunched as a food and wine shop. Its new incarnation, Shop Cuvée, delivered over 200 restaurant quality meals across the capital during its first four days in operation.

Other companies, like Popcorn Shed, which originally sold gourmet popcorn wholesale, have also had to rethink their strategy. By improving its online presence and moving to a consumer model, Popcorn Shed’s online sales have grown 250% from March to April 2020.

3. Control the cash already coming in

Obviously not every pivot is successful. And switching to a new business model won’t be the right solution for many businesses, especially those that still have money coming in. In this case, making your existing income more reliable will help improve your cash situation.

Supermarket brands, like Morrisons and Sainsbury’s, have helped many businesses here by choosing to pay their smaller suppliers immediately. Your larger customers may be open to a similar arrangement too, so see if there’s room to negotiate something more favourable.

Either way, make it as easy as possible for customers to pay you, by using a Direct Debit tool like GoCardless and an invoice chasing solution.

Sometimes you may have to be the one that extends a helping hand. For customers more likely to get into difficulty, suggest they pay in instalments. It’s better to have a customer paying you over a longer period rather than losing them entirely.

4. Take advantage of government support

The government’s extensive support packages are designed with cashflow in mind. Not only do they help get money into your business through grants and loans, they can also reduce operating costs like business rates and salaries.

You can find out what financial support schemes you may be eligible for here. You can read guidance around a range of schemes on our blog, including how to furlough an employee and access a £50,000 Bounce Back loan.

Before you borrow, it’s important to consider what a loan means for your business further down the line. Scenario planning is crucial here – to help you forecast the impact of borrowing and help you identify what kind of loan to go for.

5. Control the cash coming out

Cutting non-essential expenses is probably the first thing you did when this crisis hit. But it still bears repeating, so take another look at smaller costs flowing out of your business.

Supplier relationships are more important, so you can’t be as brutal. It comes down to agreeing terms that are realistic for both parties, which might mean spreading payments out rather than paying in lump sums. Remember, you want your critical suppliers to stay in business too.

Finally, the taxman and your landlord may be more amenable than you think, especially right now. Look into renegotiating your lease and if you can’t pay your tax bill on time, check out HMRC’s updated ‘Time to Pay’ scheme.

Ultimately, decision-making is easier when you’re able to look ahead. Tools like Fluidly help you plan for every eventuality, without the fuss of spreadsheets, so you can get on with managing your business.

Find out more about our scenario planning features

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