11 Guaranteed Ways To Protect And Even Increase Your Cash Flow As An SME During Crisis Periods
An economic crisis is when the nominal value of the assets on your balance sheet sharply decreases for various reasons. If you haven’t taken precautions and have a weak balance sheet, an economic crisis can quickly drag you into financial trouble, causing liquidity problems. You may find yourself unable to pay debts, purchase raw materials, pay employee salaries, or even afford basic items like chewing gum or yogurt.
By closely monitoring macroeconomic trends and analyzing their impact on your business with skilled team members and expert consultants, you can prepare for any economic or financial crisis—even unforeseen events like the pandemic.
Let’s say you wake up tomorrow morning, and there has been a significant devaluation of the national currency (God forbid...). Banks have frozen loans. Inflation has become increasingly unpredictable. Your team is uneasy, your customers are asking for expedited orders, and your suppliers are lining up for early payments due to market turmoil.
Your office atmosphere feels less like a workplace and more like a battlefield...
In times of crisis, what keeps your business afloat is the strength of your balance sheet and the assets it holds.
The stronger your balance sheet is before a crisis, the better you can withstand its challenges. However, if your balance sheet is built on fragile foundations, you will inevitably struggle with every crisis.
So, what can you do to protect your balance sheet and the nominal value of your assets during a crisis?
Here are 11 tried-and-tested recommendations that many successful businesses have implemented:
1. Cash is king during economic and financial crises. Staying liquid is the key to survival. Park your liquid assets in high-return investment tools, considering your risk appetite. Many businesses waste their cash on unpredictable large investments in pursuit of the "grow during a crisis" motto, only to face bankruptcy instead of growth. Crises leave no room for mistakes.
2. Suspend and reassess all investment decisions. If you have a strong equity base, continue investments only to the extent your equity allows. Avoid expensive bank loans for investments beyond your equity’s capacity. Calculate the return on planned investments realistically, without sugar-coating, and make decisions based on their strength of return.
3. Cut off unproductive customers, employees, suppliers, products, and processes. While parting ways with longstanding connections may be emotionally challenging, the survival of your business depends on being lean and efficient during crises. Professional support can help if you struggle with these tough decisions.
4. Focus on profitability, not revenue. The revenue figure on your income statement, especially if your customers work on credit terms, is just a number—not actual cash in your account. Aim for cash sales as much as possible and base every business decision on profit rather than revenue. Manage your cash flow with laser focus, particularly during crises.
5. Cash is king during crises. Insist on upfront payments from customers. Delay payments to suppliers as much as possible. Use barter (trade) instead of cash to avoid outflows. Stick to your core business expertise, avoid venturing into unfamiliar areas, and be cautious. Spend only on what your business needs and curb personal desires. If competitors fail, try to acquire their assets (machinery, equipment, inventory) at a low cost—but always prioritize liquidity.
6. Make decisions based on data, not emotions. The key to navigating crises is quickly generating data and making data-driven decisions. Utilize systems that produce reliable data and foster a culture of decision-making rooted in analytics.
7. Apply the Pareto Principle. Identify the 20% of customers that generate 80% of your revenue and offer them special deals to retain their loyalty. While maintaining a strong cash reserve is essential, issuing invoices and ensuring collections are equally critical during crises.
8. Outsource some processes. Engage expert partners who can handle certain processes as effectively and cost-efficiently as you would. When outsourcing, establish clear contracts with well-defined performance metrics and pricing.
9. Perfect your planning, execution, control, reporting, and risk management processes. To avoid being blindsided during a crisis, ensure these processes run smoothly.
10. CRISES ARE THE PERFECT TIME FOR INNOVATION! Short-sighted CEOs may opt to cut costs and reduce marketing during crises. Instead, seize the moment to connect with your target audience and identify their new needs and desires resulting from the crisis. Offer innovative products to address their pressing problems, and confidently price your solutions.
11. Equip your team with training, mentoring, and coaching. The better your team manages the crisis, the stronger your business will emerge from it.
To your victory in the business world,
Business Coach for CASH
Your Business Coaching Team