Managing a cash flow crisis

With tough trading conditions many people are facing a cash flow crisis and some tough decisions. Here are some insights that we have gained over the years.

At some point during your journey as an ambitious business owner, you will face a cash flow crisis.  In the heat of battle and when the chips are down, it is very difficult to keep your head and do what is really needed. With this in mind, here are some quick tips on what to do:

Look for it coming

If you have the slightest nagging doubt, rather than bury your head in the sand do some proper planning and forecasting. Ideally, this will be a regular finance function within your business – a leading indicator that warns you of rough seas ahead. If you don’t have it in place, now is the time to lay down the future foundations. What is your sales forecast? When will these sales be realised as cash? What invoices / payments are due? What is the actual shortfall of cash that you face?

You want an honest and real picture. Look for the worst case scenario. Don’t count on ‘possible’ or ‘maybe’. If they do happen to come in, it will be a bonus.

Collect what you are owed

In the heat of the moment, most people focus on getting new sales in and forget to collect what is owed to them. Are you doing all that you can? Has everything that you have delivered been invoiced? Has every invoice been paid? Who in your team is on top of this and making sure that it happens? Get in touch with your debtors, find out what is happening, check if everything is in place for the payment to be made, and then be fair but firm on obtaining the payment. Most people value an honest and adult conversation. Sometimes this can reveal the most astonishing and silliest things that are stopping payment.

If things are difficult for your customers, consider a payment spread. It is better to get some in now (and the rest later) than not at all. Consider adding interest but never discount.

Complete a robust review of your sales pipeline

Take a moment to step back and prioritise your sales activity. What does your sales pipeline really look like? What can be done to bring more in, earlier on? Most of the time, it is people that you already know who are going to give you sales in the short-term.

A few extra sales can be worth vastly more than even the keenest cost-cutting – though a bit of both doesn’t go a miss.

Step back and review the whole picture

Now you have taken initial action, step back and consider the root cause of your problem. Challenge your perceptions, get perspective and consider your motivations and impact.

What is the real cause for your cash flow crisis? What has led you to this situation? What is your contribution to the current picture? What is the one thing that is required to enable the sustained success of your business?

Spend what time and money you do have on the right things

Now you have established the root cause look at where you are spending your time and money? Are you spending it on the right things? Is it getting the results that you want? What needs to be done to address the balance? Where must you spend time/money to give yourself a future? Where can you save time/money? Where must you stop spending time/money?

Look for the opportunity

Once you have done all of this. Take another step back and look for the real opportunity. Crisis is often a stimulus for growth and a chance to leap on to a new curve. What have you been avoiding in the hope it would sort itself out? What can you learn about your desires, values and ambition? What changes in your business can this enable? What does this tell you about your future focus?

Make the decision that you need to make

Now you can make the decision that you need to make. What is the difference that will make the difference?

Communicate, communicate, communicate (internal and external)

It is better to be on the front foot with communication than on the back foot. Share people your view of the world but involve them in the creation of a solution.

Internally, engage their hearts and their brains in the process you are going through and the answers that you are developing. If you can’t tell them what will happen, tell them what they need to focus on and what they can influence now. Provide a shot of reality with a dose of optimism and direction.

Externally, plan for and have  ‘adult conversations’- do your homework, be clear on what you want from each conversation, present a clear picture of reality, have some suggestions/solutions up your sleeve, ask them for their ideas and remain focused on the outcome that you want to achieve.

Share the load / burden

As the business owner you are most likely to feel obliged to put other people first, make sure you have an outlet for yourself. Find someone who is outside the problem and with whom you can ‘speak the unspeakable’ and who can help you see the wood for the trees.

Embed the learning

Once you have seen it through, make sure you embed the learning in your processes and behaviours going forward. Financial discipline, prudence and planning is a key element for sustained success. Get yourself some early warning systems.