08 October 2020

Get finance fit and future ready

Making sure your cash is in the right place at the right time will help you navigate the challenges and opportunities of life beyond the pandemic.

As government schemes to support businesses during lockdown end and life begins to return to some form of normality, ensuring your business is financially fit can help you be ready for tomorrow. Liz Ambler, Head of Business Banking for HSBC’s Global Trade & Receivables Finance, shares five top tips to help you get on top of your cash flow.

1. Understand your cash flow cycle and how it fits with your business cycle

Start by taking a good look at all the different aspects of your cash flow cycle to identify if there are any issues that are creating strain or a gap.

Overlaying this with your business cycle will provide a more in-depth view of where your business is right now, taking account of any seasonality, out of date or hard to shift stock etc. Assessing current cash reserves, any outstanding payments due to or by your business and levels of inventory will give you a baseline position and can help you identify and address where there are gaps.

2. Create a cash flow forecast

Forecasting how different business scenarios will affect your cash flow can help you plan ahead, enabling you to make the most of opportunities to grow your business and to head off any issues early on. In the current climate, high levels of uncertainty can make planning seem impossible, but it’s worth sketching out how different outcomes could affect your cash flow – for example, the need to purchase additional or new season stock, how a Christmas lockdown would impact sales, the end of Government support or rent holidays, or a sudden growth in demand from an existing or new customer.

This will help you understand where your limits are in terms of making the most of new opportunities without risking overtrading and how different future scenarios will affect that baseline position. Thinking about the ideal scenario (of where you’d ideally like to be in 3,6 or 12 months) and then the factors that could influence that can help you realistically prepare for best and worst possibilities.

3. Be prepared for some tough conversations – even with yourself

When you’ve checked your current position and the impact on your cash flow of different possible scenarios, you might need to think carefully about the sustainability of your business and your cash flow. That may mean reviewing fixed costs and overheads to see if you can either turn these into variable costs through methods such as sale and leaseback, or reduce them completely by, for example, reducing office space. How you manage out of season stock can be another tricky question – whether to sell it at a discount or to pay to store it for next year. But by far the most difficult will be managing staff costs to meet your anticipated needs.

4. Build relationships and dialogue with suppliers and customers

If your cash flow review has shown any disconnect between the terms on which you receive payment from customers and the terms under which you pay your suppliers, you may want to consider whether renegotiation is possible. It’s important to consider your individual business and sector circumstances – if your supplier or customer has lots of options to buy or sell their goods, for example, then renegotiation may be more difficult. Care must also be taken not to damage relationships but having open conversations may be worthwhile and could lead to better terms for both parties – for example, price discounts for larger volumes.

5. Consider funding any gaps

Having the right funding product at the right time can help you solve your cash flow challenges and potentially remove some of the barriers to growth. If sales are increasing at a rate that threatens your ability to purchase stock, for instance, receivables finance that grows alongside sales could help relieve the pressure.

For those needing to purchase stock from overseas suppliers, where cash flow is stretched due to transportation time increasing the period between stock purchase/payment falling due and end sale, an import loan could be useful. Whilst for suppliers requiring a deposit on goods shipped, letters of credit can be an alternative that helps a business preserve cash.

Considering what financial products match your needs and can support your future plans could open doors to a more robust recovery.

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