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Managing Cash Flow and Surviving Slow Periods

Managing Cash Flow and Surviving Slow Periods

In 2008, as in 2001 and other economic cycles, businesses close down, shops, often your favourite ones, close their doors and online retailers go bust. It's a tough environment for getting customers to part with their money but also being able to raise money to see you through, especially if trading is down, something that is critical in order for banks to lend you money.

Now, clearly if they had been going a while, then at least you had a product that people were wanting to buy; but retail is cyclical, when times are hard people do not have the cash to spend and it is at these times that a bit of forward planning might make all the difference between survival and going bust. If you sell online, you will weather the storm a bit better, by having fewer overheads, without rent of rates, but if no-one is buying you may still find that this applies to you.



Cash is King

As I mentioned in my earlier blog, cash is king when it comes to the financial management of any company. If you do not have enough cash to pay your staff, yourself or the people who supply your business then you are not going to survive.

At its simplest, cash flow management means delaying outlays/outflows of cash as long as possible while encouraging anyone who owes you money to pay it as rapidly as possible. If you get paid immediately, this will help you, but even if you do you will undoubtedly have stock to buy or yourself to pay and you will need to balance what you need to buy with what you have coming in, perhaps a simple job in the early days, but not so easy when you are expanding rapidly or potentially panicking in the face or dropping sales.

The first part of a cash flow is receivables (cash paid to you and your business). How much cash are you going to get in, and when? Has this changed recently? should you be taking notice of a drop (perhaps indicating a seasonal fluctuation or a long-term issue) or increase (which may mean that if this trend continues you need to plan for help)?

The second part of making accurate cash flow projections is detailed knowledge of amounts and dates of upcoming cash outlays. That means not only knowing when each penny will be spent, but on what. Have a line item on your projection for every significant outlay, including rent, inventory (when purchased for cash), salaries and wages, sales and other taxes withheld or payable, benefits paid, equipment purchased for cash, professional fees, utilities, office supplies, debt payments, advertising. Know what you can live without, if times are tough, without affecting the ability to attract people to your business.

Only when youhave full knowledge of the above, can you hope to plan for the future. Naturally most businesses use an accountant, but from the case studies on here it is clear that if you are going to make decisions on when to hire staff or when to expand, you will need to have a decent handle on the figures too.



Surviving Shortfalls

Sooner or later, you may foresee or find yourself in a situation where you lack the cash to pay your bills. This doesn't mean you're a failure as a business person-you’re normal, someone who can't perfectly predict the future. And there are normal, everyday business practices that can help you manage the shortfall.

The key to managing cash shortfalls is to become aware of the problem as early and as accurately as possible. You could borrow money from the bank to get you through, assuming of course that you expect this to be a short-term problem. Banks are wary of borrowers who have to have money today, in a situation where perhaps their sales are dropping. They would much prefer lending to you before you need it, preferably months before and this is where having an accurate 12-24 month cash flow allows you to win. All businesses that I work with are expected to produce such a cashflow and we monitor it monthly. It won't always be accurate, but it will predict major trends and when to plan for solvency issues, something that as a director of a company you have the legal responsibility to do.

Perhaps you can borrow money from friends and family. I would advise in this instance that you only do so knowing you can pay it back. You are going to have some very unhappy family get together if you cannot.

If bankers will not help, or you do not want to ask your mum or dad, turn next to your suppliers. These people are more interested in keeping you going than a banker, and they probably know more about your business. You can often get extended terms from suppliers and this is especially true if you've been a good customer in the past.

Choose the bills you will pay carefully. Do not just pay the smallest ones and let the rest slide. Make payroll first-unpaid employees will soon be ex-employees. Pay crucial suppliers next. Ask the rest if you can skip a payment. Can you afford not to take a salary for a month or two?

If you run a retail store, identifying the items in your store that are under-performing will most likely bring you to an ‘aha" moment. If you sell online this is an equally a good habit to routinely check out too.

After figuring out what products make you the most money, put the under-performers on sale to generate quick cash. Then keep buying or making high-performing products. This alone can temporarily solve your cash flow problem, but if six months down the road you see yourself in the same situation, there may be something else going on. 

If things are not getting any better, look at your product mix and your level of customer service. Figure out where you fit within all the retailers out there, what reasons your business has to exist. What do you do best (remember my last post about keeping the fag packet in a safe place, find it now, remember why you started and see if it still applies).

Another good idea is to talk to your sales staff, assuming you have them, if not perhaps you can ask regular customers. They are the ones on the floor or the ones that purchase from you and most likely know what is moving and what is staying put, or what they will buy and what they do not like. Ask your employees for feedback on how to make the business more profitable or ask customers what they might like to see (although be a little cautious here, as they still need to buy).

so, there you go, with a bit of financial planning you will be able to predict what is happening and plan accordingly to the extent that any business can. If you don't easily know your way around a spreadsheet, that’s what you pay your account for, although I would recommend you at least learn the basics so that you can control the future of your business.


The Girl with The Green Sofa

Spotlight on PigletinBed

Spotlight on PigletinBed

Ciara Elliott, Editor of Essential Kitchens Bathrooms and Bedrooms (EKBB). A colourful home

Ciara Elliott, Editor of Essential Kitchens Bathrooms and Bedrooms (EKBB). A colourful home