Maintaining a positive cashflow today is becoming increasingly difficult as business owners are having to face soaring energy costs. Recently the Government has announced that they are providing the Energy Price Guarantee to help, but it will only be for a six-month period and it is still unclear whether the Government support will be provided after this point.
Regardless of the increase in energy prices, businesses should not let it distract their focus from managing cashflow. They should start by undertaking a thorough investigation of their finances and pinpoint any areas of concern.
How can you maintain a positive cash flow?
A very vital step to maintaining a positive cashflow is sustaining control and having a good understanding of the working capital cycle. Evaluating costs and employing best practice of credit management are effective methods to improve cashflow management. In addition, it is also essential to be aware of which of the business’s suppliers and customers are the most valuable and which ones don’t produce sufficient margins or are problematic to manage.
Monitor Financial Performance
Alongside scrupulous cash management measures, business owners should know how their business has been performing financially recently, and where its performance may be like in six months’ time. Closely analysing business data will allow business owners to be able to identify where adjustments may need to be made, and to which of the business’s areas the management focus should be directed to.
An economic downturn may cause business confidence to be dented. This can lead to business owners being dissuaded from making investments and cause borrowing institutions to become more cautious about offering finance. These components can become a self-fulfilling prophecy, inducing an economic recession. Effective communication with shareholders should be upheld so that if the worst-case scenario does occur, they are aware of the situation early on and allowing them to implement an appropriate financial strategy.
Anxious about the future?
If business owners are anxious about the future, they should seek suitable advice as early as possible from an insolvency practitioner. Some indicators could be that the business is having difficulties to pay debts or solicitors or the courts are sending them demand letters. Owners may be tempted to ignore these signs, but the earlier that action is taken, the sooner improvements can be made which could allow the business to continue. Reaching out for insolvency advice does not necessarily mean that the business has reach the end of the road, however inefficient cashflow management can push the business in that direction.