Avoiding a cash crisis
Protect your business from cash constraints during market shifts
When market volatility or economic uncertainty increases, businesses may face a cash crisis. At least one-third of small businesses report being unprepared to handle a financial or economic downturn.1 Do what you can to protect your cash flow before a crisis arises.
1. Realistic risk planning
Establish an annual risk planning and review process, if you don’t have one already. Be realistic about funding needs and run scenarios to project sales growth, sales decline, or a complete loss of sales.2 Work with your financial team, such as your banker or accountant, to simulate financial statements for each scenario and plan potential cost-cutting measures. Profitable times are the best time to plan, including identifying products or services with the highest fixed costs that may need to be eliminated (temporarily or permanently) during a downturn.
2. Retain clients
Along with your marketing and other prospective client conversion strategies, work to retain and expand relationships with current clients. Identify any pain points and streamline your accounts receivable experience with tools like digital payments and automated invoicing to reduce payment delays.3 At the same time, assess your client base and identify upsells or cross-sells to meet clients’ needs and deepen their relationship with your business. Are there low-cost benefits or features that may increase client loyalty? Explore all possible options for cost-effective retention.
3. Reduce inefficiencies and build efficiencies
During your annual risk review, assess your business structure and systems at all levels. Are there product lines that are overcomplicated? Low-cost ways to add value or diversify offerings? Examine staffing, retention, and turnover, identifying expertise you may need to hire or train for.
Along with operational efficiency, build financial efficiency. Work with your financial team to implement automations to streamline your systems. Wherever possible, automate client billing, and explore options to automate savings or investment when you have surplus cash. Building efficiencies now can help avoid a cash crisis in the future.
4. Reasses your supply chain
Identify your most critical materials and partners, along with potential backup suppliers and operations plans in the event of a cash crisis or other disruption. Develop an action plan in the event a supplier faces a disruption and is unable to deliver on time (or at all). If cash uncertainty becomes an urgent concern for your company, a supplier, or a partner, discuss potential payment extensions or payment plans.4 Maintain open lines of communication during your risk planning process and throughout the year to quickly address issues when they do arise.
5. Raise capital and build reserves
If you don’t have emergency cash reserves, identify ways to increase liquidity. This may include leasing or selling vehicles, space, or machinery that aren’t often used. If you have a particularly urgent need for liquidity, assess your accounts receivable options. Can you pursue overdue invoices or offer a discount for early payment? You may also consider scaling back on certain spend categories. Consider renegotiating leases or temporarily turning off one marketing channel to raise capital during volatile times or to build cash reserves.3 Building reserves requires intentional financial management, which can be a challenge – but cash reserves offer your business flexibility and, perhaps most importantly, time to weather market volatility.
Predicting economic uncertainty isn’t always possible, but intentional planning positions your business to avoid cash crises and remain operational in challenging times. As you identify cash flow needs or questions, make sure you have a banking team who understands your business. Treasury management tools, lending solutions, and investment accounts can be challenging to navigate, we’re here to support you and build the foundation for your business’s longevity.
