In our recent IBASA/EPI Webinar we focused on tips business advisors can give their clients in overcoming the cash crunch they often experience during the holiday period. We explored the wisdom of IBASA members by inviting some members as panellists to the webinar room, while also accommodating input from the webinar attendees. A diversity of tips were shared…
From the two in-webinar polls, it was clear that the shared priorities were to be proactive, efficient, plan ahead, reduce overheads and find alternative suppliers.
The top three tips, selected from the two polls, were.
- Invoice on time and follow up to get paid on time.
- Reduce overheads and cut costs where possible.
- Get alternative suppliers with better prices.
Before the webinar we asked that IBASA members submit their tips. From the tips submitted it became clear that cash-flow management is a multi-dimensional issue, requiring considering timing, the impact of an action, as well as understanding that the solutions stretch across various business functions. Any of these proposed interventions could, in isolation, have a little or even negative impact.
Tips submitted by panelists and members supported this reality, as indicated below…
(Business modelling, set-up, strategy)
- Market Research – understand and respect the industry seasonal cycles and methods used in the industry to bridge seasonal lows.
- Business Model – build your value offering and related cash flows to ensure bridging low sales cycles. Consider solutions like marketing, sales, credit and special discounts.
- Ensure your client clearly understand the difference between profit and cash and their respective impact on cash flow.
- During set-up of the business, ensure you cash-proof yourself by separating owner and business spending and bank accounts.
- Personal development – Spend slow business times to catch up on new knowledge, spend time reading rather than spending money.
(Business Plan and Budget, Marketing, Credit Management, Supply Chain, HR Plan, Operations, Technology, Savings, Facilities)
- During business planning, ensure realistic income and cost projections to highlight cyclical cash flow.
- Members repeatedly highlighted the need for proper budgeting and managing spending according to the budget.
- Adapt your business strategy pro-actively to ensure sufficient cash-flow. While a budget is a good tool for control, things change. Be sure that you adapt your business strategy and forecasts according to changing circumstances.
- The need to plan and actively save for lean times needs to be reflected in budgets and implemented accordingly.
- Proper control of spending is needed to be able to ensure surpluses in good times gets saved for the lean part of the seasonal cycle. A high emphasis was put on good cost control and managing the urge to spend money on things not needed.
- During planning, identify new ways/products/approaches that you can offer value to clients.
- Manage your cash-flow against budget actively and make sure you understand the cycles and timing of cash in and cash out. Anticipating cash flow is very important.
- Negotiate special terms of payment with suppliers for this period to pay either in smaller installments, extended payment days or carry over completely to the new year.
- Properly managing debtors is immensely important. Some tips included ensuring debtors are paying according to credit terms (collecting receivables) and offering a discount for early settlement.
- Invoices MUST be sent immediately after the services is delivered. Ensure accurate invoicing to eliminate payment delays
- Use debit cards (not credit) or EFT to ensure control and easy tracking of spending.
- Build a cash reserve by saving monthly into a call account to cover at least 2-3 months overheads, bonuses and taxes due.
- Good Supply Chain Management includes building healthy relationships with suppliers that may be willing to carry draw-down stock and extend your terms in lean months.
- Be on the lookout for bulk discounts on your fast-moving items. Build stock of fast sellers prior to the slow period while high production volumes render a lower unit cost but beware of not overstocking and tying up cash in stock that you cannot move.
- Consider staffing options to match your cyclical needs but be transparent to personnel about the seasonal reality and solicit their input for ideal solutions. This might also be an opportune time for serious housekeeping and training of employees. Scheduling annual leave for personnel in this time is a way to ensure capacity when demand is high.
- Effective CRM (Customer Relationship Management) proved to be one of the most important tools suggested by members to overcome holiday lulls, while it is also important to diversify into new market segments and finding new clients.
- Using historical information, forecasts can be improved, while seasonal pricing, volumes and required stock levels could be determined more accurately.
- It is important to factor in the possible impact of an increased focus on sales and leveraging of alternative media (including digital and social media), casting a wider net in a cost-effective way.
- Explore the probability to load your order book by incentivising clients to pre-book/order for the following year.
- The summer holidays might also be an opportune time for Business Advisers to offer clients strategic planning support for the next year.
- Pro-actively ensuring available funds for lean months, naturally include leveraging funding sources. Some solutions highlighted by members were securing loans, leveraging contracts or debtors in arranging credit facilities (like an overdraft), or even factoring/discounting debtor invoices to banks or specialist funding institutions.
Short Term (crisis mode!)
(These will still work best if you pre-empted the possibility and put crisis solutions in place)
- Participants were of the opinion that if the crisis hits, it is important not to panic. Don’t allow your lack of cash flow to affect your confidence levels. Some suggested avoiding family functions and gatherings but being honest about your business cash flow reality.
- Ensure you manage cash daily against your forecast. Minimise overheads by exploring more economical brands, while eliminating unnecessary luxuries, outings and gifts.
- Focus strongly on marketing and sales, offering holiday specials/promotions, explore previous enquiries that did not accept your quotations, and consider creating new or alternatively packaged products with a different price point.
- Advise personnel honestly about any possible delays in payments that might occur. Explore short time and forced leave for personnel.
- If needed, negotiate with debtors for early payments. Promoting this before year-end with some incentive will not raise cash shortage suspicions.
- Ensure the crisis stays in-house do not let the clients or creditors know you are straining, but if any reduction or delay in payments will occur, advise suppliers early and honestly. Offer a payment schedule to creditors.
- Leveraging credit/overdraft facilities or invoice discounting should be a solution of last resort. Ideally, you would want to arrange this before the crisis hits your business and you are in a stronger negotiating position.
Ten Absolutely Must-Follow Cash Flow Principles
When planning to bridge a cash crunch, we would do well to consider the Ten Absolutely Must-Follow Cash Flow Principles by Philip Campbell:
1. Never run out of cash.
2. Cash is king.
3. Know the cash balance right now.
4. Do today’s work today.
5. Either you do the work or have someone else do it.
6. Don’t manage from the bank balance. You reconcile your bank balance. You don’t manage from it.
7. Know what you expect the cash balance to be six months from now.
8. Cash flow problems don’t “just happen”. Businesses fail because the owner did not see a cash flow problem in time.
9. You absolutely, positively must have cash flow projections.
10. Eliminate your cash flow worries so you are free to do what you do best – take care of customers and make more money.
If you did not attend the webinar, be sure to watch the video below to gain some insight on the tips shared and discussed by the panellists.