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5 essential tips to help SMEs weather the storm of a cash flow crisis

Business owner reading company bill

Cash flow is the lifeblood of any business, and for SMEs it's crucial to maintain a healthy cash flow in order to ensure sustained growth and success.

It’s in the interests of any small or medium-sized enterprise (SME) to maintain a solid, healthy cash flow. However, unforeseen circumstances and market fluctuations can lead to cash flow crises that can threaten the very existence of an SME. Surviving such a crisis requires careful planning, strategic decision-making and adaptability. Luckily, shrewd financial planning is our speciality here at One Two One Accounts, so we’ve got plenty of effective strategies to recommend when it comes to handling cash flow challenges.

So, take some deep breaths, keep your cool and read on, because in today’s blog post, we're going to be discussing our five essential tips for navigating and overcoming cash flow crises as an SME. Let’s get stuck into it.

1. Regularly monitor and forecast cash flow

The first step in surviving a cash flow crisis is to have a clear and consistent understanding of your company's financial health. This means that when things get rough, you have a clear picture of what’s going on.

For this reason, we recommend regularly monitoring your cash flow by tracking incoming and outgoing funds, including both revenue and expenses and preparing cash flow forecasts to anticipate potential shortfalls and patterns in your business's financial performance. These projections will serve as your early warning system, helping you identify and address cash flow issues before they escalate.

2. Reduce unnecessary expenses

During a cash flow crisis, it’s essential for you to sit down and scrutinise your expenses, identifying any areas where you can cut back without compromising on essential operations.

Start by eliminating any non-essential expenses and renegotiating contracts with suppliers in the hopes of securing better deals. You should also strive to implement cost-saving measures, such as energy-efficient practices and digitalisation to reduce overheads. By identifying and trimming any unnecessary expenses, you can improve your cash flow position and maintain financial stability during tough times.

3. Optimise accounts receivable

In a cash flow crisis, timely collection of payments is absolutely vital.

Review your accounts receivable process and ensure that you have clear and concise invoicing procedures. You may like to try offering incentives - such as discounts or extended credit terms - in order to encourage early payments.

For overdue invoices, try to adopt a polite yet assertive approach in reminding customers about pending payments, and if necessary, consider working with collection agencies to recover outstanding debts. By optimising your accounts receivable, you can improve cash flow and minimise the risk of bad debts.

Business owner calculating his companies financial report

4. Negotiate payment terms with suppliers

Another tactic for supporting healthy cash flow - especially during times of crisis - is to negotiate favourable payment terms with your suppliers, so don’t be afraid to request extended payment periods or discounts for early payments.

Building strong, honest relationships with your suppliers can lead to mutually beneficial agreements during a cash flow crisis. As such, we recommend fostering open communication and transparency as these approaches are key to successfully negotiating new terms that ease the burden on your cash flow, as and when you require it.

5. Secure emergency funding

Even with careful planning, some cash flow crises may require additional financial support.

If you find yourself in a bind, it’s important to explore various emergency funding options to bridge the gap during challenging times. Traditional solutions include tapping into lines of credit from banks or credit unions, while alternative options like invoice financing or merchant cash advances may also be available.

Remember to evaluate the terms and interest rates carefully before choosing the best fit for your business. Of course, emergency funding should only serve as a temporary solution until your cash flow stabilises!

How can One Two One Accounts help?

Our accountants are experienced in helping SMEs to navigate cash flow problems. Having a highly trained professional analyse your figures can help to identify the root cause of the problem and we can recommend appropriate action. Our team can also advise on tax relief opportunities and help you keep on top of your bookkeeping.

Looking for professional guidance with your SMEs cash flow management? Look no further than One Two One. Simply contact us today.


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