A business must manage four important elements at every stage of the business cycle and in particular during a slow economic period. These four areas are cash flow, break-even point, sales pipeline and resourcing.

Cash Flow Management

A business needs to have enough cash to get through a sluggish period. Whatever situation your business is in, it is important to have an effective cash flow management plan. Here are some factors to consider when planning your cash flow:

Cash reserves

It is recommended to have cash reserves that will enable you to fulfill your obligations even during occasions when cash flow is negative.

Accounts receivable

When the business is slow, be proactive in collecting receivables to bring funds into the business sooner to cover your payables.

Operating expenses

Preserve your cash flow and maintain the equilibrium within your business by looking for sustainable ways to reduce your operating expenses. However, whilst it is best to lower your expenses, it should not compromise the quality of your products or services.

Cash preservation

Look into your supply chain risk management, financing options, office rent, variable costs, and possible government support when creating plans to preserve your cash flow.

Assessing Break-Even Point

Break-even point is the stage where total costs are covered by total revenue. Although it is a challenge to attain at times, you can still find ways to achieve this by evaluating:

Revenue 

One of the obvious signs of a business downturn is loss in revenue. Track your profits regularly against corresponding periods and budget and by spotting revenue drops early, you have more time to improve marketing and sales strategies to try and generate revenue.

Gross profit

If revenue cannot be increased at the first instance, then review gross profit margin and explore ways to increase this.

Other costs

It is also advisable to review payroll and other overheads in the business and understand the necessity of these expenses versus the savings associated with removal of these expenses.

Understanding the Sales Pipeline

It is always important to closely and regularly monitor the sales pipeline and especially so during a downturn in the business cycle.

Leads to sales forecast

It is important to regularly measure your leads to conversion and the revenue associated with it. This translates into a sales forecast which will allow management to predict future profit and loss positions that will translate into a cash flow forecast.

Cash flow forecast

A cash flow forecast is important to help understand the requirement to inject more funds into the business or to make more drastic decisions on costs. There are many tools to help forecast cash accurately, such as Float. I have written about Float in a previous blog.

Managing Resources

Managing your resources effectively is the key to prepare and survive a sluggish period. You must create a plan for the business to match resources with tasks, time, equipment and revenue. This will help you navigate through the tough times and allow you to make informed decisions.

Conclusion

Preparation is always the first step in facing the possible disruptions that your business may face. Analysing all important elements in your business — cash flow, break-even, sales pipeline and resourcing — will help you create a solid plan to keep your business moving forward even during a slowdown.

Let Us Help

If your business has a turnover of over $1 million, ABJ Solutions is offering a complimentary one-hour meeting to help answer questions and model critical decisions with you. Get in touch with us today so that we can help guide you through this challenging time.