The Covid-19 shutdown has put extreme pressure on the cash flow of a lot of small and medium trade businesses across Australia. Now more than ever you need to have a solid plan with how you measure your cash flow and how you analyze different scenarios in your business. This strategic planning will be used for different purposes across the finances of your business. This will help you improve the cash flow in your trade business.
There are numerous scenarios planning will help your business. You may have experienced a dramatic drop in revenue, and you need to see where or when you need to apply for finance. This is where doing cash flow forecasting will come into play as you will know the months where you really need the cash injections and how much you may need. Your business may not have seen a drop-in revenue yet; however, you may be concerned that your debtors are not going to pay as fast and you are not sure if this will leave you exposed to a cash crunch. This is another example of where you will need to do some planning to see the sensitivity in your debtor book and the exposure to a few specific debtors.
Here are a few ways below to help improve your cash flow position through planning:
- Figure out the key drivers that will improve your cash flow and apply different margins
- Create a 3-way cash flow and prepare some different “what if” scenarios
- Create 3-4 different plans to see which one is the most effective
- Review your pricing strategy and the payment structure around this strategy and put this through the plan
- Track everything from job profitability to overhead percentages
The 5 strategies list should be complete in your trade business with an Accountant or Finance advisor. This is because they have knowledge and skills that will help identify and improve the situation. We discussed each of these strategies and more in-depth with the team from Clarity Consultancy Services who walked us through some useful cash flow templates using excel in our past webinar from the 20th of May 2020.