Even in more normal times cash flow in any business is the number one priority. When businesses do fail, 82% do so because of negative cash flows. It is vital your business prioritises generating and maintaining cash to survive these difficult times.
The coronavirus pandemic has made it hard for businesses to ensure they have more money coming in than going out. For the period between Q2 2020 to Q1 2021, the Bank of England forecasted that companies were dealing with an aggregate cash-flow deficit of around £140 billion.
While the UK Government has put in place a number of fiscal measures in response to the pandemic shock, including the Coronavirus Job Retention Scheme (CJRS), Coronavirus Business Interruption Loan Scheme etc. businesses still face a fight to maintain their pre-pandemic trajectory.
Here are some ways you can stay cash flow positive, whatever the climate:
1. Invoice promptly
There really is no excuse in this day and age not to invoice your customers promptly and chase their payment as early as you can. Invoicing software has made it easier than ever to deliver timely and personalised invoices, while giving customers more ways to pay.
You can also set up automated overdue reminders, ahead of time (before due dates). You might want to incentivise early payment by offering discounts or other benefits to customers in order to get cash in the door.
Consider invoice discounting. This was once perceived as a declining business’s last port of call before failure. It is now a much more recognised legitimate business tool that is used effectively by businesses of all shapes and sizes.
2. Focus on repeat business
It’s easy to become focused on acquiring new customers – a critical part of any growth strategy, of course – but keeping hold of the ones you already have is every bit (if not more) important. You already carry the cost of acquiring these customers. Make sure you have an effective strategy to keep close to them and add value to your existing relationship. Don’t fall into the old financial services trap of offering financial or other inducements to new customers but leave your current loyal ones out in the cold and disadvantaged.
There are plenty of stats to back this up – one example is that increasing customer retention by 5% can increase profits from 25-95%. How so? Well, one customer experience agency found that loyal customers are 5x as likely to repurchase, 5x as likely to forgive, 4x as likely to refer, and 7x as likely to try a new offering.
So, in addition to those incentives designed to attract new customers, consider offering loyalty schemes and VIP offers to encourage repeat business.
3. Act ahead of time
Cash flow forecasting will help you understand whether you have a temporary or longer-term cash shortfall, and it will help you choose a strategy to deal with it.
Once you understand what you’re up against, put corrective plans in place now, rather than later when you have no time to react to the situation.
This point is particularly pertinent with COVID threatening many businesses’ revenues. In response, the Government has introduced the Coronavirus Business Interruption Loan Scheme (CBILS) that can provide facilities of up to £5m for smaller businesses across the UK. The CBILS supports a wide range of finance products, including term loans, overdrafts, invoice finance and asset finance facilities.
Could the CBILS help your business right now? Shire Leasing may be able to help you with this.
4. Price competitively
It’s hard to envisage what the economy will look like once ‘normality’ is restored. But it’s fair to say that there will be winners and losers in the new normal.
Now is the time to begin your analysis on what side of the fence your business is likely to end up on – and pricing your goods/services accordingly. Perhaps you could gain a competitive edge and increase sales by dropping your prices a little? Alternatively, if you’re expecting the demand for what you offer to increase, it might be worth experimenting with prices to find the golden number that your customers will pay.
5. Lease your equipment and supplies
Leasing equipment is a great financial solution for any business. By leasing assets under a fixed rate finance lease, you can forecast more easily with fixed monthly payments. Other finance options can provide other benefits – for example, refinancing or sale and leaseback can help your cash flow by freeing up working capital while also allowing you to continue using the equipment critical to your business.
Whatever you need be it a fleet of vehicles, IT or telecoms equipment, leasing these assets will conserve your valuable cash. With a lease agreement in place, rentals can be paid monthly or quarterly so you can keep cash in your business and employ it where it matters most at the time.
Shire Leasing can finance almost any equipment for businesses in almost any industry. Contact us for more information and to start building your bespoke financial package.