j

by Brian Dineen

}

02.25.2022

How to use cash flow planning now to make good strategic decisions that will impact your future

Here’s a true story, a real-world example, from the last recession:

When the big recession hit in 2008, companies with business plans and good business planning process were able to adjust to the drop much more quickly than their competition. Sales dropped suddenly. The companies with a good planning process turned to their plans and quickly adjusted costs, expenses, marketing, and so forth to deal with the change. The ones without good planning had to dig into their business details during the crisis to develop and understand the connections. With planning, the connections are already there, so you adjust them.

If you already have a budget and a forecast for your business that helps you predict your cash flow, now is the time to dig in and create different scenarios to help you understand how changes in sales will impact your cash.

If you don’t currently have a forecast, that’s OK. Now is the perfect time to create one and put it to work.  

With your forecast in hand, you can anticipate how far things will fall, and identify the best ways to react:

  1. Figure out your burn rate and runwayHow quickly are you using up your cash reserves and how long do you have before you run out of cash?
  2. Review marketing programs: Are there marketing programs that you should cut or reduce?
  3. Review payroll: For most businesses, payroll is the biggest cost. With your revised forecast, take a look at how changes in payroll could keep you afloat. You have options:
  • Freeze hiring
  • Layoffs
  • Cut all salaries by 20%
  • Cut leadership salaries
  1. Review all discretionary spending: From office supplies to employee perks and meals, take a close look at every expense and see what you can cut moving forward.

The benefit of having a plan is that you can quickly adjust your sales forecast, adjust your expense budget and see what impact that’s going to have on your cash flow moving forward. A cash flow forecast will highlight your trouble spots in advance so you have time to react and come up with solutions.Forecasting your projected cash flow for different financial scenarios is an ideal way to assure that you'll never be surprised, only prepared to make strategic decisions.

Don’t worry about having all the right answers when you first start forecasting. You just have to make your best guess at what future sales might look like and explore scenarios, with your plan, to help you make the best possible decisions about what expenses to cut and what to keep.

Plan for the future and know that the crisis will not last forever

Every small business owner is currently experiencing the negative effects caused by the coronavirus. While this is both a health and economic crisis, just know that it will not be forever and that we’re all in this together. No one wants to see businesses fail, people out of work or struggling to make payments, and there’s a good chance you’ll find support amongst your customers and vendors.

I still remember vividly when I hit a wall with my own business and had to go to my vendors and tell them my payments would be made more slowly. I learned then that information and transparency can be the most effective method for surviving a crisis. Sure, they’d rather have your money but hearing from you, with explanations and promises, is an order of magnitude better than silence. And by reviewing your financial statements now and forecasting potential scenarios, you can also go to them with a plan of action.

If you need your customers to pay faster, brace yourself, everything is tightening up and they’re likely in a similar situation. Talk to customers, change the terms, offer discounts, protect your long-term relationships with them. 

Lastly, consider that it may be time to look for extra working capital. Keep your eyes open for government measures to help small business and business owners, and talk to your favorite banks too. Don’t give up or panic, there are plenty of opportunities to not just survive this crisis but emerge with a stronger business than before.

Featured

Related Posts

FinTech or Human?

The most significant disruptor, or innovation - depending on your perspective , in the last decade or more in small business lending is FinTech (Financial Technology). It has led to some of the most drastic changes ever seen in the small business borrowing process....

read more

5 Tips for Acquiring Business Loans

When you need to borrow money for your business, where do you start? One of the keys to a successful search and completion of a business loan is preparation. Here are 5 things you must do to ensure success: Specifically define your objective. Do you need money for new...

read more

Need Help?

Get In Touch

Follow Us

About the Author

Brian Dineen

Brian Dineen is the owner of Trinity Capital Partners. Mr. Dineen has experience in all facets of the commercial lending industry. His expertise includes credit evaluation, underwriting, collateral valuation, lease structuring, loan packaging, and loan/lease closing.

Related Posts

FinTech or Human?

FinTech or Human?

The most significant disruptor, or innovation - depending on your perspective , in the last decade or more in small business lending is FinTech (Financial Technology). It has led to some of the most drastic changes ever seen in the small business borrowing process....

read more
5 Tips for Acquiring Business Loans

5 Tips for Acquiring Business Loans

When you need to borrow money for your business, where do you start? One of the keys to a successful search and completion of a business loan is preparation. Here are 5 things you must do to ensure success: Specifically define your objective. Do you need money for new...

read more
Borrowing in Today’s Market

Borrowing in Today’s Market

Borrowing for your Business requires more Planning and Patience today Yes, it has already been said thousands of times: in the year 2020 we are in an unprecedented time from a market, social, and political perspective. I have many customers telling me, OK, Brian, we...

read more