7 tips to make Cash flow positive in the crisis

7 tips to make Cash flow positive in the crisis

Managing a company’s inflows and outflows is a basic responsibility of any financial manager. In unfavorable economic contexts, however, the task tends to become more challenging. Therefore, it is essential to know how to manage cash flow in a crisis.

In general, difficult times require even more accurate analysis and financial management tools , in order to find a new balance between controlling expenses and making investments. After all, the scenario is different. So, you need to know how to deal with it.

But how to do this in practice? Below, we present the answer through 7 tips for managing cash flow in a crisis. Discover, from them, some interesting solutions to overcome obstacles during adverse scenarios!

1. Prepare a cash flow projection consistent with context

Undoubtedly, the first step consists of carefully reviewing the cash flow projection . This measure is crucial for, from a panoramic view, to arrive at financial movement estimates consistent with the moment.

Note that this process of reassessing the financial volume that enters and leaves the business over a given interval helps to face the current reality. This detail is important so that expenses, costs and possible investment opportunities are within the company’s possibilities.

Therefore, if before a turbulent period, the expectation was to achieve a certain revenue, it is likely that the crisis will cause a drop of x% over the considered interval. In this sense, you must readjust the use of available capital.

With this information, you have the necessary conditions to preserve the financial health of the business in the best possible way. Bearing in mind that the procedure, of course, must be taken simultaneously with other actions, discussed below.

2. Improve the finance cycle

Depending on the duration and characteristics of a crisis, it can impact revenue to a greater or lesser extent. Thus, it is also necessary to keep an eye on the harmony of your company’s financial cycle.

Keeping payments up to date requires, for example, a lot of skill when it comes to renegotiating contracts with your suppliers . In practical terms, it is necessary to recalculate the intervals between receiving money from customers and the due transfer to business partners.

As you can imagine, the financial cycle has other agents and commitments, such as those related to employee salaries. Depending on the severity and depth of the crisis, such as the most recent one, triggered by the Covid-19 pandemic, a temporary reduction in salaries is not ruled out.

At a higher than expected level of criticality, perhaps some layoffs are inevitable. However, remember that this is a process that also harms the organization’s accounts.

The ideal is to try to find less drastic solutions, but that are really effective for cash balance. Also, keep in mind that any adjustments made must be communicated to the stakeholders (employees, suppliers, investors, etc.) involved with as much transparency as possible.

3. Avoid overspending

In line with and in parallel with the changes implemented so far, the allocation of available resources must be rethought. If it was necessary to extend payment terms, nothing more natural than mapping the operation and identifying possible ways to reduce the costs derived from it.

At the same time, it pays to monitor the budget more closely for the feasibility of continuing with ongoing projects.

In certain circumstances, some of them (less priority) may be suspended for a few months — with a return forecast, motivated by the continuous monitoring of the situation.

4. Control defaults and cancellations

Bad times for business are invariably characterized by one or more waves of order cancellations or decreases. There is also an increased risk of raising the default rate.

Both consequences demand attitudes compatible with the degree of urgency they require. It is also a fact that, with the help of technological solutions, the company starts to work with predictive intelligence.

In other words, there are methods and mechanisms that facilitate monitoring and the probability of worsening default rates and cancellations. With a good financial management system it is possible to achieve excellent results.

At the same time, start thinking about the possibility of setting up teams specialized in analysis and data science. Combining the best tools with the most talented professionals is one of the secrets of success for organizations that overcome tense periods along their path.

5. Review methods and processes

The ideal is to prioritize the essential processes for the conservation of the company’s economic activity. Here, a good tactic is to review stocks.

Perhaps it would be good to take advantage of the situation to adhere to the lean method of production, marked mainly by avoiding waste.

In this lean production model, not only does productivity increase, but the quality of the items produced improves. If there are high costs with logistical operations, review the freight policy, readjusting it for the most distant coverage areas of the company.

6. Count on strategic planning

Strategic planning is another indispensable component to survive the occasional shocks in the financial market. Like the cash flow projection, the plan created at the beginning is no longer useful when it is taken out of context.

Therefore, it is vital to calmly evaluate the details and thus see what can be kept and what should be abandoned – at least for now. Bear in mind that the short term becomes more relevant, but without forgetting the medium and long term periods.

7. Look for new sales opportunities

Finally, another fundamental measure refers to the search for new sources of income. We talked a little while ago about the need to reassess freight, but the expansion of the coverage area is another point that deserves to be discussed.

This is because, sometimes, the most promising solution is precisely to sell to areas that are farther away. Everything, of course, needs to pay off financially, in addition to keeping in line with the business structure.

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