What businesses need to know about managing cash flow in uncertain times

Matt Rowan

You don’t have to look far to figure out we’re navigating pretty uncertain times. Between interest rate rises, inflation and supply chain disruptions, it’s no wonder that businesses (big and small) are feeling the pinch right now. 

While we can’t change the macro forces driving these uncertain times, there are tangible steps your business can take to protect yourself financially in the choppy waters ahead. 

It all comes down to nailing the basics and drilling down into business financials 101: cash flow management. By regularly reviewing how much money you have coming in and out of your business, you can figure out if you have enough funds to meet your expenses and keep the lights on.

With a clear understanding of your cash flow, you can make proactive decisions, anticipate potential problems and troubleshoot solutions well ahead of time. Let’s run you through what you need to know about managing your business’s cash flow in uncertain times. 

What is cash flow?

First up, let’s get clear on a few key points. When we talk about cash flow, we’re really talking about the amount of money moving in and out of your business at any time. 

If you’re generating more money than you’re spending on expenses, your business will have positive cash flow. However, if your bills outweigh the money coming into your business, you’ll likely be in negative cash flow.

We know a lot of business owners use reports like Profit and Loss Statements and Balance Sheets to track their finances. However, these reports alone aren’t generated regularly enough to assess if your business has enough of a financial runway to navigate uncertain times. 

Instead, by tracking your cash flow on a regular basis (weekly, fortnightly, monthly), you can forecast various scenarios and take a more proactive approach to your numbers. By projecting how much money is coming in and out regularly, you’ll know if you have enough funds to meet upcoming expenses or if you need to shave down some outgoings to make it through a quieter period. 

Understanding the importance of cash flow

Jargon aside, cash flow is one of the most important metrics to be tracking in your business. Essentially, it’s all about understanding if you have enough funds coming in to meet your bills and expenses in the short to medium term. 

So, why does this matter? We like to use an analogy from the Titanic to answer this question: it’s a lot easier to avoid an iceberg if it's not right in front of you.

Forecasting your cash flow position gives you options and the ability to make proactive choices. Unlike other financial reports that look at the past, your cash flow is all about looking ahead and planning for the future. This is what allows you to anticipate bumps in the road and plan for times when cash is going to be low. 

Here are a few questions to ask yourself when considering your cash flow position:

  • How are you collecting your debts? 
  • Do you have automated invoice reminders in place to speed up payment?
  • What expenses could you trim down when incoming cash is low? 
  • Is there wasteful spending (such as unused SaaS subscriptions) that is reducing your chances of profitability? 

How to navigate economic uncertainty by diversifying your cash flow

With all of this in mind, you’re probably wondering about how to future-proof your business (particularly with economic uncertainty on the horizon). 

While reducing/streamlining your expenses is a powerful first step to improving your cash flow position, boosting your income is just as important. And one of the best ways to do that is this: diversify your cash flow. 

Start by thinking outside the box and consider other ways to bring a new stream of income into your business. That could be monetising your physical shopfront in new ways, expanding your product offering or even changing the way you price your services (such as moving to a subscription payment model). 

Take these examples of how businesses have been able to find related revenue streams to tap into:

  • A local cafe looked beyond selling sandwiches and coffee and rented out their wall space to help local artists sell their wares (while taking a cut of the sales).
  • A hairdresser started selling scented candles in their studio, a great way to boost revenue by giving customers something to browse and buy while waiting for their booking. 

When considering ways to diversify your revenue, it’s always worth getting advice from a trusted professional (such as an accountant). It’s a lot easier to forecast your financial position when you bring in an external expert to do it for you. Plus, a good adviser will be able to consider your business's goals and give you the support and encouragement you need to make the right decisions. 

Here are a couple of things to keep in mind when looking for an accountant:

  • Find someone who speaks your language and takes the time to explain the finance jargon in ways that resonates with you and your business.
  • Shop around and compare a number of different accountants to ensure you pick the right person who clicks with your style of working. 
  • Make sure you find an advisor that you feel comfortable with and at times is willing to have a frank or uncomfortable conversation when needed - being confident when asking questions is how you’ll get the best value from your accountant!

Ultimately, there’s nothing worse than feeling uncertain in uncertain times. So, make sure you have the right experts in your corner to guide you through the challenges ahead. 

Co-created by Matt Rowan (Cape) and Emma Fabbro (Fusion Accountants - Member of the Intuit Quickbooks Trainer Writer Network)