6 Steps to Optimizing Your Business’s Cash Flow During Economic Headwinds

Given the current economic uncertainty, maintaining cash flow is a top concern for many businesses. Fortunately, there are steps you can take to navigate economic headwinds and optimize cash flow.

6 steps to maximize cash flow and keep the money flowing.

Step 1: Start by addressing your working capital (payables, receivables, and inventory).

• Get smart about accounts payables. Audit your payables, and make sure you are paying the correct amount and taking advantage of any available discounts (particularly before they start to disappear). Know your upcoming costs and look into extending payment terms on existing accounts payable where appropriate.
• Be diligent with your receivables. Practice good accounts receivable management. Invoice promptly, collect cash up front wherever possible, and collect any outstanding AR.
• Know your inventory. Move to a weekly or even daily analysis of inventory so you know how much cash you can reasonably expect to come in the door.

Step 2: Reduce your costs wherever possible. 

• Reduce variable costs. Implement hiring freezes, reduce contract labor, and redistribute work to your permanent workforce. Freeze discretionary spending, such as entertainment or training. Encourage employees to take available leave to reduce liabilities on the balance sheet.
• Reduce fixed costs. Review your fixed costs and look for savings opportunities as the result of maintaining a remote or hybrid workforce. Remote or hybrid work may allow for a reduction in fixed costs for office space if your workforce can operate well with less physical space. If you don’t have a lease renewal or option coming up, look at lowering other traditional fixed costs, such as utilities.
• Convert fixed costs to variable costs. If appropriate, consider selling assets and leasing them back to raise cash. Outsource processes and investigate use of third-party contracts for things currently done in-house with flexible terms and monthly costs, such as data-hosting and warehousing, among others. These functions can move back in-house when the economic outlook stabilizes.
• Delay capital investments where appropriate. Now may not be not the time for that build-out or technology overhaul. Consider whether you can get by with what you have for now and leave the pricey projects for stable times to come.
• Consider leasing instead of buying.  Leasing can help to pay in smaller increments which will help to improve cash flow.  An added bonus is that lease payments are typically a business expense that can be written-off on your taxes. Talk to your accountant about your best possible option.

Step 3: Take advantage of tax-saving programs. 

Make sure you don’t miss out on opportunities to keep your business financially healthy.  

• Investigate tax credits. If you’re developing or improving a product or process, you may be entitled to significant credits for your qualified research expenses.
• Stay up to date.  Stay on top of the latest options to take advantage of newly available options you may not have considered traditionally for your type of business. Talk to your accountant to make sure you are taking advantage of what is available as it is always changing quickly.

Step 4: Use financing interventions as a safety net.

Debt is often a necessary and healthy part of business. Here’s how to get smart about your debt.

• Review your existing debt.  Look for more favorable debt repayment terms wherever you can. Talk to your bank and get in front of any debt repayment challenges.
• Leverage lines of credit. Reach out to your financing partners to determine whether your line of credit is still what you thought it was, whether it is sufficient to cover your worst-case scenario, and talk to your financing partners for other options if it’s not.
• Ask for help. If your regular financing partners can’t help you, LP can help leverage our relationships in this space for you. 

Step 5: Consider your company’s retirement plan and look for money-saving opportunities. 

• Review current year contributions. Are retirement plan contributions set in stone for the current year, or can they be modified? Talk to your accountant and your plan advisor.
• Get creative with plan expenses. Plans can be a drain on cash in the form of both contributions and built-in plan expenses. Look at paying plan expenses out of the retirement plan instead of current operations if your plan allows. This will free up cash for now, but you should confirm that it is not prohibited by your current plan.

Step 6: Get creative with your banking.

There are money-saving banking strategies you may be able to implement today.

• Review your disbursement methods. Investigate using a controlled disbursement account if you don’t already do so. Arrange for electronic payments because they are cheaper and provide continuity.
• Reduce banking expenses. Make sure you’re getting the lowest bank fees, foreign exchange, and merchant fees. Only pay for the banking services that you need.