Cashflow crunch?

Written on the 14th of January 2009 by Matthew Nolan - Good Onya Australia's Business Management Gun

Managing cashflow in any business can be a difficult balancing act, but with a new approach there’s cause for optimism in even the slowest markets!  This starts with a number of proactive strategies you can employ to make the payment of expenses more effective for your business.

• Negotiate:
  Take full advantage of creditor payment terms, which might include discounts for earlier or upfront payments of goods or services. Moreover, negotiate to extend terms where possible – this will help free up your cash for other payments or purposes.
   
• Delay:
  If things are looking particularly grim, try delaying your payments to the very last date possible. But keep in contact with your creditors so they know that you haven’t forgotten about them and you’re not being evasive.
   
• Pay electronically:
  To buy yourself a little extra time, try and make all payments via electronic funds transfer (EFT). Through EFT you’ll be able to leave payments to the latest possible due date; you’ll also have records that make account reconciliation easier.
   
• Diarise:
  An up-to-date diary of pending commitments will help give structure to paying your expenses. This might include insurances, car lease payments, rents, salaries and other fixed regular costs. Any major one-off payments should also be included.  Scheduling these costs will help identify and prioritise payments and help ensure you have available funds when due.
   
• Communicate:
  Keep in touch with your creditors.  Open and transparent communication will make it far easier to negotiate an extension should you find yourself faced with a cash shortfall. Most creditors will be willing to make alternative payment arrangements as long as you’re proactive.
   
• Manage shortfalls:
  If faced with a cashflow shortfall, you’ll need to explore options to cover the gap. If you know that you’re going to struggle to meet the cost of your expenses, first and foremost try and cut down to the bare necessities. Then consider additional outside sources such as investors and financiers.

Business conditions in Australia will return to more normal levels. Remember that the current crunch is probably also affecting your suppliers, competitors and customers. This means that if your business avoids any undue impact of this temporary situation it will be well placed to compete and thrive in the future. Through engaging expense management strategies, your business will be well positioned to better manage its cashflow and be best positioned to survive in the current market.

Matthew Nolan is the host of SME Money Makers on Sky Business and has over 19 years experience in banking and finance, specialising in providing finance to SMEs.