Efficient cash flow management is important for a business at all times, but more so in times of recession. As per Kavan Choksi Wealth Advisor, economic slowdowns can make it much harder for a company to chase invoices, pay their suppliers or get a bank loan. Hence, to ensure that one has enough cash to stay in business, managing cash flow in a smart and systematic manner is important for all business owners.
Kavan Choksi Wealth Advisor provides insight into managing business cash flow during a recession
Recession implies to a sustained period of economic contraction or negative growth, across a country’s economy. They are a natural part of the economic, and tend to be characterized by a decline in employment and production, along with a reduction in consumer spending. With less money circulating in the market, businesses may not have enough funds to pay employees and meet important expenses.
Recessions can cause major cash flow problems for a business, as it becomes more difficult for them to make payments on time.
Hence, businesses need to have a proper plan in place to manage cash flow during the recession. They particularly should focus on:
- Assessing the current finances: Business owners firstly should review the current financial situation of their venture. They need to identify how fast they are using up their cash reserves, as well as how much time will it take them to run out. Business owners must identify all the inflows and outflows of their firm, and check its cash conversion cycle. In case they manage to identify any bottlenecks or problems, business owners need to explore ways to improve cash flow. For instance, they need to keep a close eye on accounts receivable, send invoices out in a prompt manner, and pay off the debts as soon as possible.
- Utilizing technology for financial management: Smart use of technology is the simplest yet among the most effective ways of managing business cash flow. Automated processes can help a business owner to lower their expenses, and make it simpler for them to collect payments. Accounting software can be used, for example, to check how much money is coming in and out in a comprehensive manner. Accounting and invoicing software available today often helps businesses to effectively track invoices, get notifications when payments are overdue and send automatic reminders. They may even have reporting and analytical capabilities as well.
- Reducing expenses and outgoings: Business owners need to explore ways to keep their expenses in check during a recession. If possible, they can choose to shift their operations to a remote working model instead of paying for physical premises. They may even spend less on inventory in order to lower the risk of tying up cash and reducing storage expenses. If a business owner has built strong relationships with suppliers, they may even choose to renegotiate agreements.
As per Kavan Choksi Wealth Advisor, creating a well-rounded cash flow forecast is important for forward planning. The plan must show the expected inward and outward flow of a business over the next six to twelve months. Based on the predicted amount of available cash, business owners determine how much expenses they should cut, and make contingency plans for a continued economic downturn.