Managing your cash flow in a crisis

If your business is doing it tough right now, it might be time for some savvy cash flow management. Here's what you can do to stay liquid and keep your head above water.

It’s no secret that we’re in the middle of a cost-of-living crisis. That means increased expenses and decreased consumer spending – hardly the ideal recipe for small businesses trying to keep their doors open and their lights on, or at least keep their eCommerce inventory in stock.

A recent survey of small business owners found that nearly half of them cite cashflow and profitability as their most pressing concern right now, as they try to make it through a particularly challenging period.

To get through the lean period, you need to first understand your projected cash position. Here’s our breakdown on how to survive until things pick back up.

Planning ahead: Forecasting your future cash position

While your accounting system will keep you updated on current figures, forecasting future cash flow requires another tool in your arsenal. This tool is what finance buffs call a 13-week rolling cash flow forecast.

Essentially, it’s a spreadsheet that helps you forecast what your cash balance will look like on a weekly basis for the next three months. Its purpose is to quickly identify any potential cash flow gaps in the business, and offer insights into how you should respond. You can access our template to stay ahead of financial challenges.

A weekly cash flow forecast will help you address the following:

  • When can I expect a dip in cash flow?
  • How do I close the cash flow gap?
  • What funding options, like a line of credit or financing, are available to bridge these cash flow gaps?
  • How does delayed customer payment impact our financial outlook?

If you haven’t implemented a cash flow forecast, work with your accountant or bookkeeper to develop one together. It’s a nifty tool that will guide your financial strategy throughout your business journey.

Fast funds: Strategies for acquiring cash quickly

Once you’ve assessed your business’s cash flow forecast, the next step is to understand how to improve your cash flow position. Here are three ways to do this:

  1. Get more cash in the door from customers
  2. Defer liabilities
  3. Consider short-term finance options

Get more cash in in the door

Collecting more cash from your customers is the first and most important step. Begin by generating an accounts receivables report from your accounting system and review all your outstanding balances. If you spot any laggards, be proactive – pick up the phone and chase them.

If they are a small business, chances are they may be experiencing some cash flow challenges, same as you. In this case, consider offering a flexible payment plan. Encourage them to commit to manageable weekly repayments via direct debit to help alleviate their own cash flow strain. Every little bit helps.

Defer liabilities

Deferring liabilities is a neat little trick to help you get through those leaner months where cash is tight. It doesn’t mean eradicating your debts – it’s simply extending payment terms for any outstanding obligations.

Liabilities include any payments you owe to suppliers. If you have strong relationships with them, consider asking them to extend their terms during this period. Don’t be too greedy, though – remember that your accounts payable are their accounts receivable.

If you spend a significant amount of money on advertising on platforms like Meta or Google, consider switching your payment method from direct debit to monthly invoicing. This can give you an additional 30-day payment window to square them up.

When it comes to creditors, the biggest one will most likely be the Australian Taxation Office (ATO). The ATO has shown leniency toward small businesses in the past, and can be quite reasonable and fair when negotiating payment arrangements.

Once your bookkeeper has lodged significant liabilities, engage in open discussions to negotiate payment arrangements. The terms you need will depend on what your cash flow forecast looks like, but it’s best to be conservative in this scenario.

Short-term financing

If you’ve exhausted all the options above, you might need to consider short-term financing to plug the cash-flow gap.

Start by evaluating your existing credit facilities and their associated limits, such as:

  • Current Bank overdrafts
  • AMEX and business credit cards
  • Trade finance.

Thoroughly review each facility to understand its drawdown limit. Chances are you haven’t revisited these in a while, so there may be an opportunity to increase the limits from what they are.

For example, one of our clients had a $40,000 facility on their business AMEX which hadn’t been reviewed in several years. A simple email to AMEX resulted in an extension to $100,000 within a week. This additional $60,000 of interest-free financing served as a lifeline for the business.

If existing facilities are depleted, you may need to consider online lenders as a last resort. However, exercise caution here – some may impose exorbitant effective interest rates, reaching as high as 40%.

At the end of the day, there will always be tough times that small businesses have to fight their way through – but establishing financial control and visibility through a cash flow forecast will help you create a strategic plan and navigate your way with confidence.

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This article was updated on 17 May 2024.  It’s not…


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