April 14

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7 Step Cash Flow Management Action Plan

By Patrick Millerd


Covid-19 bred a devastating cash flow management crisis in small and medium sized businesses around the world. Making many owners painfully aware of their business vulnerability.

“Two out of five small businesses expect to run out of cash with six weeks, according to a new survey. And one in five small businesses say they will run out of cash within three weeks.” writes Timothy Adler

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Every SMB faces a cash flow crisis at some time. While many of these are of their own making at times they face a far more serious “black swan” event. A crushing punch far bigger than any business that also seriously damages the world economy. 

At times like this, many small business owners face a financial black hole. And they know that confronting this dire crisis is both scary and very urgent. 

Cash Flow Management Action Steps

Setting out it may feel like you're attempting to climb Mt Everest with no training or equipment. 

Whatever the circumstances! It’s time to start. 

Step 1: Prepare a simple cash flow forecast

This exercise is not about bookkeeping or accounting it is simply about the cash! It should not be delegated or given to the accountant ... it is the responsibility of the owner!

Start with an understanding of the big picture by asking and answering questions like:

  • What cash does the business need? 
  • What cash do I need personally? 
  • What cash resources are available in the company? 
  • What cash resources do I have?
  • What resources are available from government and bank schemes? 
  • What expenses can be deferred and for how long? 
  • What expenses can be cut immediately?
  • What are other options? 

Resource: A trusted advisor or friend - when making tough and painful decisions it’s easier to have someone else to bounce ideas off.

Action: On a spreadsheet ( Get your Google Docs example here) detail the weekly unavoidable expenses for the business for the next 4 to 5 weeks. If necessary do a personal one as well.

Then include as income any definite amounts that will be collected (no guesses or wishes!).

Finally prepare yourself for painful decisions and conversations – these are going to be tough and stressful so be ready.

Step 2: Cutting Overhead Costs

Focusing on the expenditure side review an up to date income and expenditure account. 

Review last month's bank statements - business, personal, and credit cards. Make sure no expenses are overlooked. Check back over the previous two to three months to see if there was anything missed.

Every business accumulates fat. This is the time to brutally trim it.

Think expenses like:

  • Subscriptions you don't need.
  • Services that you pay for each month, but you aren't using.
  • Premium subscriptions or services which have cheaper options.
  • Service provider retainers which can be changed to service or project-based fees
  • External services e.g. bookkeeping and payroll that can be brought inhouse. 

Are there any expenses that can be renegotiated? 

With this exercise you're looking creatively for every cost saving option. 

Resource: If this sounds too daunting I recommend first reading Chris Voss’s book on negotiation “Never Split the Difference”  

Action: Make phone calls to negotiate potential savings, renegotiate existing agreements, ask questions and be persistent! 

After completing this step update the Step 1 Cash Flow Summary with any savings.

Step 3: Cutting Staff Costs

Staff costs are the major expense in many SMB’s and often have the biggest savings potential. Unfortunately, they are also the most difficult to confront. 

One option is to do it without considering the actual incumbent. Approach it as an exercise of rethinking your business structure. Draw a new organisation chart. Analyse every role and define the deliverables. 

Do some quick research (thumb suck?) on the market pay rates for people in these positions (taking into consideration factors like the location, the size of the business, unemployment in the area and the required deliverables).

With the structure defined, map the existing staff on to the chart. 

At the same time asking questions like: 

  • Is the position really needed? 
  • Are there options to automate functions or roles?
  • What are the options to get the same deliverables? 
  • Is the function being executed in the most optimum way?
  • Can positions be combined?
  • Does it need a full time or part-time role? 
  • Is it necessary to be on site or could it be remote? 

With this stage set the next thing to do is to review each person’s performance against the revised structure and the requirements of the role and to compare their salaries with the market levels. 

Being as dispassionate as possible ask the following questions:

  • Is there now an excess headcount?
  • Are people being paid in excess of market rates?
  • Are there underutilised people?
  • Are there any underperformers?

Remember to focus on “what is the best decision to save the business?” and that you are not alone with these challenges. 

It is interesting that a number of business owners I have spoken recently have realised that their businesses have excess staff. This has become obvious as working with a skeleton staff during the lockdown they have realised that the business works as well as it did before ...  with significantly fewer people!

The difficulty with dealing with staff is that over the years, relationships have been built with them – many are loyal and hard working. As a result there will be waves of emotion when dealing with certain of your people, but you have to make the hard choices.

What are your immediate options to reduce staff costs?

  • A blanket reduction either permanently or for a limited period. 
  • Consider deferring or not paying any bonuses until the business can afford them.

Introduce short time – reducing the working week with a reduction in pay or using accumulated leave.

Resource: This is another time when you may need some support and perspective from a trusted advisor. As they are not emotionally involved, they will give you a more rational perspective.

Action: Based on the decisions made adjust the Step 1 Cash Flow Summary.

Step 4: Suppliers

Speak to suppliers about deferring or splitting payments or settling accounts with discounts and come to agreement. 

Consider negotiating extended terms, commit to continue supporting suppliers who assist (not a threat but a commitment!). 

Consider options like those in Step 2 and ask suppliers what they can offer. In “Never Split the Difference” Chris Voss covers a number of tactics to make these negotiations effective.

Action: After completing this process make any payment adjustments to the Step 1 cash flow summary.

Do NOT just let the situation drift without being proactive and one to one communication. Note that this is not an email or WhatsApp communication but ideally owner to owner.

Step 5: The Cash Flow Crisis Decision

After making all the changes analyse the Cash Flow Summary and decide whether it’s doable. 

If yes, go ahead and make it happen. 

But if no, go through the exercise again and see if there is anything else that can be done to either reduce payments or get in more cash.

This may also be the time to decide whether the mountain is too high and whether you have the resources and drive to make it a success. If not, it it will be time to start considering your Plan B options.

Assuming that there is a way forward then move on with the next two steps.

Step 6: Get Cash Fast

Be relentless in collecting any outstanding debts. Customers may be in the same situation as your business so ensure you are at the top of their “to pay first” list.

Pursue all the possibilities of getting cash in fast: 

  • Can the business make any sales online? 
  • Are there any slow-moving or excess stocks that can be sold for cash?
  • Are there any redundant assets that can be converted into cash?
  • Are there personal or business loans that can be collected?

Step 7: Staff Discussions 

It’s now time to brainstorm solutions to minimise the impact of the staff reduction decision on the staff.

What can be done with the excess staff? 

  • Is it possible to relocate them in the existing business in a lower level, lower paid position?
  • Is it possible to assist staff who have been impacted to build their own business? 
  • Is their role one that could become part of the gig economy? 
  • Are there other businesses in the area that could use their services on a part-time basis? 
  • Are any staff eligible for early retirement? 
  • Is there some redundant “baggage” that the business has been carrying through the good times?

Having considered these options, it is time to address the final hurdle. Having a one on one discussion with each affected staff member – it is important to to note that this also is not an email or WhatsApp message solution. 

In the one-on-one discussions find out whether they have any ideas, options or suggestions? Have they been planning to leave? 

Action: After completing this process make any final adjustments to the Step 1 cash flow summary.

Execute the plan!

The Final Step

Cash flow management and forecasting is probably one of the most critical tasks in an SMB. Using this exercise build the process as an essential element of the ongoing business system. Consider it as the business thermometer to understand the sustainability risk in the business. 

Even if the business appears to have sufficient cash it is easy to accelerate the cash burn and quickly turn a business from safe to critical.

Patrick Millerd

About the author

I help small and medium size business owners achieve success through managing the financial health of their business. By applying focussed goals for cash and profit and customer management.

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