Enterprise

Strategies to keep business afloat in times of recession

stress

Use business resources wisely to avoid cash crunch during economic slowdown. PHOTO | FOTOSEARCH

Effective cash flow management is an essential requirement of running a successful venture. However, in low times such as what many firms are experiencing, it is a matter of life and death.

Competition has reduced margins to razor thin, prolonged political uncertainty has dampened investors’ confidence and banks have effected stricter lending criteria. All these and more factors strain businesses as the availability of cash becomes limited.

Here are some of the strategies you can apply to keep your business growing and out of the red in a depressed economy.

First, meticulous review your costs. Ensure you know how every cent that comes into the business is spent. This may sound like a mere rhetoric but nearly all business can review and cut cost by at least 10 per cent without affecting operations. If you have challenges get a financial consultant. It always pays.

Second, review your efficiency levels to ensure all your resources, both capital and human are employed adequately and generating maximum returns. Get rid of unnecessary baggage such as un/underutilised assets, non-performing staff and unnecessary costs that do not add value.

Third, manage your debtors’ books. It does not really make business sense to strain, even borrow when your customers owe you money. But since it is not possible to operate without debts in most business be strict with debtors. Invoice on time and chase payment regularly and fairly.

Most customers will not pay unless you persistently follow up.

READ: Invest in sales staff to boost revenues

Fourth, review with your supplier’s credit terms. Negotiate with your suppliers for longer credit period than you are giving your customers. Your customers will do the same for you. This is a game of wit and you must always try to have the scale tilt in your favour.
Fifth, control your inventory. Overstocking and stocking slow or dead stock drains cash from the business. Some traders stock slow moving products in order to provide one-stop service to their customers.

Others overstock in order to enjoy great discounts or economies of scale when ordering in bulk.

Although all those strategies sound good, they do not do good to your business if they lead to cash flow crises. It is better to enjoy thinner margins and eliminate slow-moving stock rather than suffer the adverse consequences of a lack of cash in your business.

Finally, do not bite more than you can chew. Do not over-commit your finances or take more orders than you can comfortably service. Have the courage and discipline to say no to business opportunities, not only outside your core business but even within that is likely to strain you financially.

Do not withdraw money from business to fund other projects without adequate planning. Pay yourself a regular salary commensurate with your input and business profitability and let the business grow.