4 cash flow crisis management tips to avoid economic icebergs

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Avoid becoming the next Titanic-sized failure and gain control of your business finances with these cash flow crisis management tips.

cash flow crisis management

When the Titanic sank in April 1912, there were a variety of factors that caused one of the worst maritime disasters in history. Experts agree that it was a combination of human error and natural forces that led to the historical sinking. The ship was going too fast, the crew dismissed a critical iceberg warning (and then made a fatal wrong turn), key costs were cut that sacrificed safety and there was a lack of equipment including binoculars and lifeboats.

If you’re running a company during the recent pandemic, there are some important lessons to be learned from the history of the Titanic. The financial impact of economic downturns can be significant when sales start slowing down, contracts are delayed, supply chains are disrupted, customers can be lost and, ultimately, cash flow is affected.

To survive, many businesses will need to leverage cash flow crisis management strategies. Though you may not always be able to avoid the ‘icebergs’ ahead, you can plan and respond to changing market conditions proactively to minimize the impact on your business — and avoid disaster. 

Here are four cash flow crisis management tips that can help you minimize the impact of economic downturns on your business:

1. Update your cash flow forecasts

“Cash is king.” Considering that the cash cycle for many businesses is 90 days, it is essential to have a good understanding of your sales cycle in terms of lead times, purchase of raw materials and production of goods and services. Sales forecasting helps business owners understand where cash is going (and coming) from. It can also help you to establish a strong slush fund in case of slow periods of growth.

Thinking about the future of your business is critical to success. However, as the business grows, it can become harder to get additional financing due to the debt that the business has to take on. Evaluating your burn rate and runway, your marketing programs and expenses can help you make necessary adjustments to your cash flow forecasts.

2. Follow up on outstanding accounts receivable

In periods of economic downturn, it is important to get on top of your accounts receivable and make sure that you are getting paid on time. By carefully auditing your accounts receivable, you can achieve better financial flexibility to avoid economic icebergs in the waters.

Once you have a firm understanding of what accounts are outstanding, it’s time to follow up with those accounts and have them settle their invoices. It may also be worth considering and balancing the risks and rewards of adjusting your terms of payment.

Want to learn more about savvy bookkeeping tips for small businesses? Click here.

3. Review and adjust expenses

To achieve greater business resilience, it’s important to understand all of the liabilities for your business and to have a plan to reduce them. Evaluating what your fixed and variable costs are is a good way to start cutting costs.

Looking for areas of flexibility on your payroll, cutting redundant line items and considering time management strategies or tools are just a few ways that you can adjust your expenses and increase profitability.  

 

cash flow crisis management

4. Consider alternative financing options

Keep an eye on future planning and strategizing. As your business grows quickly or financial circumstances change, you can run into challenges getting additional financing through traditional funding options. 

Leveraging the power of alternative financing options such as Invoice Factoring, Asset-based Lending or PO Financing could be the life preserver your business needs. Alternative funding can also help to increase flexibility and long-term success while complementing your current traditional funding arrangements.

At Liquid Capital, we understand what it takes for small, medium, and emerging mid-market businesses to succeed – because we’re business people ourselves. Our company is built on a network of locally owned and operated Principal Offices, so whenever you’re talking to Liquid Capital, you’re talking directly to your funding source and a fellow business person.

Cut business expenses & improve profitability — Get these 6 tips!

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Be strategic when setting out to cut business expenses and you can fuel business continuity.

Cut business expenses

A penny saved is a penny earned…it’s a saying that’s all too familiar to most entrepreneurs. (After all, all those pennies can add up to some big dollar amounts.) It’s also an extremely useful piece of advice when managing your cash flow and trying to outlast or prepare for an economic downturn. 

Knowing what costs and when to cut is a balancing act that, if not properly executed, can put your business in jeopardy. However, when done correctly, it could help set you up for business success.

Goodbye emotions, hello strategy. Cut business expenses with clarity.

When making budget cuts —  big or small — be careful not to act on emotion or jump too quickly. Instead, take a strategic and analytical approach to deciding which line items can be adjusted or deleted completely.

So dust off your calculator, sharpen your pencils and pull out your company’s financials. Here are six areas that you should look at when starting to cut business expenses.

1. Cash flow: future and present

Creating a plan for where you think your business will go is crucial to future success. It helps you to understand where the business is going so you can future-proof it against economic uncertainties. But you can’t know where you’re going if you don’t know where you are starting from now. So the first step is to calculate your current cash flow and identify areas of improvement.

Start with part 1 of our cash conversion cycle blog series.

2. Audit both variable and fixed expenses

Once you understand how cash is flowing through your company, you can look at adjusting the speed at which it leaves your coffers. 

You may be surprised to find that expenses once considered fixed, are now variable, and can be reduced or cut. For instance, with the recent shift many companies have made to remote work, you may find that you can downsize or make a transition to a partial or fully remote workspace. 

When looking at cutting your variable expenses, think outside of the box (even the smallest line items can add up). Office supplies that you regularly ordered may no longer be needed when your workforce is at home. Speak with vendors to take advantage of discounts and adjust your delivery schedules where applicable. Improving relationships with suppliers combined with better inventory and supply chain management can reduce expenses.

3. Industry benchmarks

Measure your performance against industry standards, which will help you better understand how your business is doing in comparison to the averages. Once you know how you stack up, you can take action to separate your business from the competition and increase profits. This will also help you create target goals for the next quarter or year. Make sure to share those with the entire team, so they know what they need to collectively achieve.

Cut business expenses & improve profitability

4. Implement time management strategies and tools

Time is money, so make sure you and your employees are making the most of the workday. Using apps like Focus Booster or Rescue Time can keep your team on task and focused on results. It’s also important to set expectations within your organization for how long certain tasks should take so everyone is clear on how their time should be spent. 

5. New technology investments

Constant investments in new technology can yield long-term improvements along with more efficiencies across the business — and reduce costs over time. Focus on maximizing ROI when building your tech stack. 

Is that new project management software going to speed up your team’s workflow and will they use it? Would better accounting software spot costly errors and pay for itself? Would AI improve your inventory management, or should you invest in other areas with a more immediate return? Carefully select tech investments based on your business goals — and watch out for tech trends that are just a flash in the pan. When you need to cut business expenses, don’t be the guinea pig.

6.  Employee incentives to cut business expenses

Creating loyalty amongst your staff and offering creative ways to reduce waste can go a long way. Listening to your employees can give you further insight into areas that could be cut or reduced. It may even spark some creative solutions that you wouldn’t have necessarily thought of alone. Set up a brainstorming session or survey as a starting point, and you may even want to delegate a team to find efficiencies and cost savings. By rewarding them for their efforts, everyone wins!

About Liquid Capital

At Liquid Capital, we understand what it takes for small, medium, and emerging mid-market businesses to succeed – because we’re business people ourselves. Our company is built on a network of locally owned and operated Principal Offices, so whenever you’re talking to Liquid Capital you’re talking directly to your funding source and a fellow business person.

 

Ready to cut business expenses today? Here are 5 more practical tips to spend money wisely. 

Bankers wear capes, too! How funding superheroes work together

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Alternative and traditional funding solutions unite to make the perfect financing team — working together to help clients at the bank and beyond!

Want to provide the ultimate level of customer service to your customers and potentials? It’s time to dust off your cape and join forces — Avengers style. 

The Avengers all had similar goals, but very different approaches, to saving the day. Yet, when they united for a common goal (like preventing a supervillain from world domination), they were unstoppable. 

The same goes for banks and alternative funding partners. Together, these forces are able to provide powerful funding solutions for customers of all types.

If you are a banker who specializes in helping businesses secure financing, then you know the incredible importance of creating and maintaining strong customer relationships. However, your meticulously cultivated relationship could be in jeopardy if your customer doesn’t qualify for a traditional loan. By working with an alternative funding partner, you can stop saying no and start saying yes!

Time to save the day

When a customer (or potential customer) comes to you for help, reassure them that you’ll do everything in your power to accommodate their needs. They came to you looking for a solution to their problem and although your bank may not be able to help, you can always offer them alternative lending options, working with a partner who understands the role you each play.

Keep villains at bay

If you aren’t familiar with all the options available to your customer, you leave them vulnerable to potential evil-doers. Not all ‘lenders’ are created equal. There are some who might entice business owners with promises of low rates and false credibility — but your client may not realize there are caveats including contractual constraints and hidden costs. 

Your reputation is on the line, so it’s crucial to feel confident with the referral partners your work alongside. Get to know their solutions and processes so that you can develop a high level of trust in advance.

Want an easy resource to explain invoice factoring to your client? Download this eBook and feel free to share. Invoice Factoring Guide.

Put competition aside for the greater good

It’s easy to think that bankers and alternative lenders are competitors (after all, both provide funding to businesses in need). However, as with superheroes, both want the best for their clients — and to ultimately satisfy their needs to grow their business. 

As a banker, having a trusted preferred alternative lending partner can greatly alleviate the stresses of not being able to traditionally accommodate a client. Often, clients don’t know which solutions best suit their business, so they’ll trust you to guide them. By leaning on the expertise of a lending partner who can, in turn, give you accurate advice quickly, it can help to secure prospects and retain clients.

Outline a bridging program – Avengers style

Every superhero has their strengths and weaknesses, but when they band together, they become an unstoppable force. Creating a program that bridges the gap can also help you to gain higher market shares and enhance your bank’s overall image. 

In the case that a prospect is desirable, but their financial status or length of time in business disqualifies them for traditional lending, creating a bridging program can go a long way to securing them as a future customer. 

Your alternative funding partner can also assist the bank in picking up the deposits and some of the ancillary services to start working with the client. As they become qualified for bank financing, they could transition into traditional commercial lending. 

In the instance of a current customer, they might be maximized on their line of credit. Alternative lenders can step in to fill the gap for as long as the client needs it. The lender can extract themselves when you say they can now be accommodated with traditional lending.

Alternative and traditional funding solutions unite

Teaming up with those who have your client’s interest at heart, provides you with more resources to save the day.

Depending on the industry, or the economic landscape, there may be a slower ramp-up to when a client is ready for traditional banking. But now, not only have you provided your clients with reassurance and a trusted ready solution for the present, but you have also created a roadmap for their future business growth, getting them where they need to be for traditional banking.

Do you have a client that hasn’t met all the criteria for lending? Send them this quick guide so they know what steps to take next.

Now if that’s not a hero, who knows what is?

With the Liquid Capital Bank Alliance Program, we help banks grow their market share and strengthen client relationships. Learn more about how this exclusive program can work for you and your customers here.

About Liquid Capital

At Liquid Capital, we understand what it takes for small, medium, and emerging mid-market businesses to succeed – because we’re business people ourselves. Our company is built on a network of locally owned and operated Principal Offices, so whenever you’re talking to Liquid Capital you’re talking directly to your funding source and a fellow business person.

Financiamientos Recientes – Septiembre 2020

Financiamientos Recientes – Septiembre 2020

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Financiamientos Recientes – Septiembre 2020

Business innovation

How to foster a culture of innovation in your company

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When the unexpected hits, fostering a culture of innovation within your small business can yield big results.

Culture of innovation

As this year’s world events began to unfold, many industries were hit hard — especially those who supply machinery to the aerospace and oil and gas industries. Those who worked to foster a culture of innovation have been able to forge ahead and keep their working capital flowing. 

Before the global pandemic even made its way to Canada, Machinery Experts Inc., a New Brunswick-based heavy equipment manufacturer, was already feeling the pinch from a protracted downturn in the oil and gas sector. Then COVID-19 hit, grounding air travel and drying up much of the company’s business from steel fabrication shops across Atlantic Canada. It also forced them to rethink how their sales team reached customers.

Like fellow business owners such as Bijan Bolouri of b.cycle, they had to quickly pivot and rethink their business model in order to survive the sudden downturn in sales. Fortunately, Chris Landry, president of Machinery Experts, knew that the key to surviving was through innovation. However, a misstep in strategy that put them in hot water meant they’d have to make another quick pivot and get back on the right track.

Here are three lessons for cultivating innovation, which Landry learned through experience during these unprecedented times. 

Missed the first 5 lessons on business innovation? Click here to catch up on part one.

 

Lesson 1: Turn lemons into lemonade

When life hands you a bag of lemons, you can turn them into something sweet — if you have the right frame of mind.

According to a recent study, the most resilient business leaders are also the most innovative, with 22% exhibiting higher innovation than their peers. They also reported having 19% higher cognitive flexibility and 18% higher team creativity. These skills are key drivers of success and are critical for overcoming the unexpected (and expected) obstacles that will come your way.  

For Landry and Machinery Experts, this has been a core strength of their business, even before the current downturn. Speaking about the repair business in a Natural Resources Magazine interview, “the bust times almost strengthen our business. Mining companies aren’t buying new assets, they are repairing current assets.” For the company, they knew that their services were needed even more when the economy turned downward, and that positioned them to prepare for future slumps.

Lesson 2: Own your mistakes

Creativity may not always translate to the market in the way it was intended — and when that happens, resilient leaders are able to bounce back quickly. 

For Landry, that creativity took the form of a billboard for Machinery Experts Inc., put up near a local beach to channel the fun, summery vibes they thought would appeal to passersbys. In reality, it was poorly received by many locals and Landry soon found himself inundated with calls for it to be removed. Realizing that his company’s billboard was not hitting the mark he had intended, Landry quickly jumped into action. The billboard was removed and Landry publicly apologized.  

Want to become a more resilient leader? Get these top tips.

 

Lesson 3: Respond to customers’ changing needs

Finding new ways to service the needs of your customers is a hallmark of a company with a culture of innovation — and that starts at the top. Resilient business owners are able to find new ways to use existing products and processes and are better at identifying areas of opportunity. In the case of Machinery Experts Inc., they were able to overcome setbacks by finding new areas to expand their business.

In the economic downturn, many steel fabrication plants were hesitant to purchase new machines, which can cost upwards of $500,000. Landry decided that a shift in the company’s focus from selling new machinery to providing long-term maintenance contracts and offering more used machinery (which costs between 30% and 50% less than new equipment) was what customers now needed.

“This is a revenue stream for us and it helps our customers because now they don’t have to deal with costly breakdowns,” the business leader explained.

 

Lesson 4: Enable your Sales team for the digital era

Machinery Experts’ successful pivot in response to changing customer demands means they are still operating in the black and are optimistic for the future. In recent months, the company’s sales of used equipment (which typically accounts for 20% of its revenue) doubled. They are also realizing gains from the newly launched maintenance services.

This wouldn’t have been possible without a quick pivot in the way their sales team is selling. Not only have the products and services adapted, but how they’re meeting with customers has, too. 

Leveraging the power of digital communication tools, such as Zoom, allowed salespeople to conduct meetings in a new way and let them showcase the machinery for sale. It also provided unexpected savings for their operating costs, as travel expenses were trimmed completely. 

“We can’t be the road warriors because you can’t cross the border, but that’s been a good thing in a way because we have the contacts,” Landry explains. Cold calling past customers has also provided a large boost to their sales slump. 

 

Even with these changes, it’s important to keep a realistic forecast. As Landry explains, “for the next couple of months, I just want to break even.” In the event of any unexpected market fluctuations, a conservative plan can keep your business moving forward.

 

Leadership first

This wouldn’t have been possible without a culture of innovation within the company, starting with its leader. Employees will embrace new ideas and ventures when leadership creates a space where innovation is encouraged.

You never know when the unexpected will happen, so fostering a culture of innovation within your business will help you come out on the other side.

Help me innovative with better cash flow

Experiencing a sudden influx of orders can be overwhelming even during the best of times. It’s important that you take preventive measures against experiencing a shortage of working capital by evaluating your cash flow and preparing for different financial scenarios. 

Even if you are incredibly diligent with maintaining your cash flow, there will still be times when you need extra working capital. Leveraging the power of alternative funding solutions can give you an advantage over the competition. 

 

To learn more about cash flow and smart cash for tactics read our 4 part cash conversion series:

Read Part 1: How to determine your company’s “cash conversion cycle”

Cash conversion cycle

Read Part 2: 7 proven cash flow tactics every CFO needs to know

 

Cash flow tactics for CFO

Read Part 3: Learn how to leverage your assets to grow your working capital

Grow your working capital

Read Part 4: Learn how to keep suppliers happy and cash in your pocket

 

About Liquid Capital

At Liquid Capital, we understand what it takes for small, medium, and emerging mid-market businesses to succeed – because we’re business people ourselves. Our company is built on a network of locally owned and operated Principal Offices, so whenever you’re talking to Liquid Capital you’re talking directly to your funding source and a fellow business person.