Money (20)

By Matthew Hardill, chief finance officer at Solutionize Global

Throughout any challenging climate, businesses will be tasked with the difficult prospect of reacting swiftly and innovatively, in order to survive.

Today, forward-thinking firms – typically suited to change – may now be rolling out more ‘hybrid’ working options, to assist in employees’ circumstances and reduce office expenses, for example.

Other enterprises will have explored more online services to convert sales – and save on physical premises – or completely pivoted their propositions to provide streamlined experiences that meet ever-changing customer demands.

Throughout any transformation, finance will have typically been at the forefront of a leader’s mind – and how they can manage their income and expenditures. Of course, there is often help available to ease cashflow concerns – particularly when a crisis occurs, for example, through grants, loans, and Government schemes.

However, during the recent months, organisations will have had to spend additional painstaking hours to review and evolve current processes in order to sustain a strong level of income. And those findings may have resulted in companies reducing stock, furloughing staff, asking customers to pay early, or liaising with suppliers about delaying invoice payments.

Every last penny has been scrutinised – and must continue to be throughout such uncertainty.

However, as well as the obvious financial struggles many organisations face during true times of crisis, there are also opportunities for companies to control their cashflow. By implementing more effective solutions to prepare themselves for a better future, early reviews and consistent income updates can arm enterprises to be in a much stronger position to survive another potential crisis.

The ongoing challenges for businesses – and their finance departments – are to weather ongoing storms and avoid liquidity stress during truly turbulent times. And there are ways in which to roll-out a robust plan to help manage cash in a crisis. Here are five starting points...

  1. Effectively forecasting for all possible outcomes
Of course, no company can come complete with a crystal ball, however, a financial leader should be well-versed in predicting outcomes and identifying trends to help keep businesses one step ahead of the curve.

There are different ways to achieve this. For example, some enterprises prefer annual forecasts whereas others occur monthly – or sooner. To battle against liquidity stress, it is extremely important that rolling cash forecasts are in place so that they are consistently updated and are able to reflect real-time, and forthcoming, situations.

Within these reports, the finance department should provide enough detail to ensure senior leaders know where their organisation stands. Giving management the tools to make critical decisions early can ensure cashflow is not compromised when a downturn is likely to happen.

  1. Working out the spending priorities
Once the forecast has been reviewed – and leaders are up to speed on the financial position – the team should be able to categorise what outgoings must go at the top of the pile, and which can be held back for the time-being.

Typically, payroll will remain as the number one priority because it covers employee salaries, however, there should be further considerations made for key and secondary suppliers. Lenders will most likely appear towards the bottom of the list too.

Other vital checks during these ongoing financial audits should include the analysis of any business loans that a firm has taken on. Knowing which need repaying first – and the ones that come with hefty penalties if an invoice is missed or delayed – is critical when avoiding liquidity stress.

Once a company has set out its cashflow priorities, time is of the essence, so it is well worth firms steering clear of putting off any payments if they can help it. Enterprises should also keep monitoring the latest guidance concerning Government grants and relief schemes – all of which can help to ease financial worries.

  1. Never stop communicating with relevant stakeholders
Opening up dialogue as soon as possible – no matter how difficult a conversation may have to be – is absolutely vital.

Often, companies that have strong relationships with suppliers can negotiate respectful repayment terms which ensure both parties are looked after – from delaying invoices to implementing instalment options.

Payroll is another huge consideration for organisations to factor into their cashflow management because staff will likely be affected during any crisis. HR must also be notified if, for example, redundancies, restructuring or furlough options are being considered – so that companies can follow the proper channels and come to an effective agreement.

Being transparent, honest, and open can safeguard future business relationships – and it is worth remembering that organisations on the receiving end will also have their own financial concerns to contend with.

  1. Shortening the reporting cycle
For firms reporting annually, it is perhaps best practice to consider rolling-out quarterly, monthly, or weekly options instead in today’s fast-paced, digital-first world. With modern-day workforces changing rapidly, financial status updates must reflect the ever-evolving business climate – and that means making detailed audits available in real-time.

By adjusting these timings, financial departments can assist in helping their organisations to swiftly recognise variances in actual cash positions versus forecasting – and subsequently act in an agile and proactive manner.

It is advisable to create daily reports which detail what is expected to go out – and come in – regularly. This intelligence can also ensure that large spend is controlled, for example, allowing senior management to have oversight of any substantial purchases that could greatly impact cashflow.

This data must be shared throughout the leaders in the business so they can be made aware, in good time, of any critical decisions they will be likely to make.

  1. Identify the low points and be prepared for a downturn
Annually, business ebbs and flows throughout, so organisations should be able to implement specific plans to minimise cash during the slower months they are expecting. As discussed earlier, this could be done by reducing stock, chasing customer payments early or delaying invoice payments – in the lead up to quieter times in the calendar.

Ultimately, enterprises must prepare themselves in the best possible way and work closely with their financial departments in order to receive – and act swiftly upon – relevant, real-time data that they are privy to. Executing forecasts, adapting quickly to real-time situations and effectively planning can all help businesses to evolve their processes, manage liquidity stress and reduce cashflow complications before it is too late.