Cash outflows such as payroll, Canada Revenue Agency remittances, rent and utilities must be paid on time; however, inventory purchases and accounts payable might be deferrable. Rent and loan principal payments may also be extended with agreement from the landlord and lender
Every business experiences challenges that require owners to make tough decisions. As with an unexpected illness, businesses are often taken off guard when problems arise.
Owners must look at this as an opportunity to assess and strengthen the overall health of the organization.
Determine the cause
A negative business surprise might appear as the cause, but it’s usually only a symptom. A changing industry, end of product life cycle, customer or supplier concentration or excessive leverage could be your true Achilles heel.
Depending on the problem, the remedy might require tough choices and co-operation from stakeholders. And ask yourself honestly: is management a problem?
If your processes or reporting are producing unexpected results, maybe you need to own up to a management gap and reach out for assistance from advisers.
Take corrective action with cash-flow planning
Having sufficient liquidity to sustain operations while you deal with the longer-term issues is key to keeping your business alive.
Cash-flow planning involves understanding your inflows and outflows and making changes to better your cash position.
Improve cash inflows by quickening your receivables collection days: invoice faster, require cash up front from late payers, persistently chase your customers and resolve disputes proactively.
You may also consider factoring, which can bring cash in faster by selling your accounts receivables.
Other cash inflows can come from supplier rebates and the sale of non-essential assets.
Cash outflows such as payroll, Canada Revenue Agency remittances, rent and utilities must be paid on time; however, inventory purchases and accounts payable might be deferrable.
Rent and loan principal payments may also be extended with agreement from the landlord and lender. Discretionary payments such as marketing expenses, asset purchases and bonuses should be stopped altogether to conserve cash.
Making the tough decision to cut non-essential staff early and decisively can avoid larger problems later.
Set up a cash-flow plan with weekly inflows and outflows for the next four to 12 weeks. Continue this with a monthly plan for the remaining 12 months and check in regularly against budget to see how you are tracking.
Communicate with stakeholders
Communicating with your employees, trade suppliers and lenders is critical to the recovery of your business. Internally, it’s best to get ahead of rumours by providing information to your staff on what is happening and what corrective measures are being taken.
This will build trust and loyalty, and your employees can pull together to help the business if given the chance.
You could ask your suppliers for support, both in continuing supply and providing extended credit terms, and in return you will commit to keeping them informed of progress.
Lenders don’t like surprises and are more inclined to work constructively with clients that proactively communicate and demonstrate how they’re addressing the problem.
By providing detailed cash-flow forecasts and an action plan to lenders, you allow them to gauge if the business is turning the corner and, equally important, if they can trust you.
Lenders may be willing to restructure loan payments if they feel you will deliver on your plan and keep them whole.
Keep on track
Once through the critical phase, keep tracking cash flow, adjusting and learning as you go. If you see that you are missing weekly budgets, see where further cuts can be made so that your interim reports to stakeholders show you meeting your commitments.
Once the patient is stabilized, turn your attention to longer-term care by bringing in the management team to formulate a successful business strategy.
These measures will help to treat the problem and set up your business to be better equipped to deal with future bumps in the road. With a dose of planning, communication and tracking, your business can look forward to a long and healthy life. •
