The pandemic has been a tough time for many of you. Reduced business, restrictions on opening hours, staffing issues – many aspects have taken their toll. It may be that during this time you have had to take out loans to keep you going. As we move forward, the focus is on getting back to business and aiming to retain employees wherever possible, as well as making up for any shortfall in the last 18 months.
I understand, there will still be a large element of uncertainty regarding sales forecasting but now is a great time to manage cash flow and review your costs. Where can you cut costs to improve the bottom line?
Hi. I’m Anna Goodwin, your friendly finance mentor. With over 30 years of experience, I know how important it is to keep an eye on cash flow and manage costs.
What is cash flow?
Cash flow is the net amount of cash moving in and out of your business at any given time.
Positive cash flow: you’re adding to your business cash reserves.
Negative cash flow: you’re depleting your business cash reserves.
The aim is to have adequate cash on hand to cover your expenses and obligations and to have more positive cash flow months than negative cash flow ones.
Of course, cash flow is affected by both the money that comes into and the money that goes out of a business. In this blog, I am concentrating on how you can decrease your costs.
Review and manage your costs
The biggest mistake people make with their costs is not knowing their total costs because their figures aren’t up to date. It’s crucial to have accurate and reliable figures. The last 18 months may have had a positive or negative impact on your costs, but you won’t know until you list them. And you won’t be able to cut costs until you know what they are!
Your first step is to list all your costs – don’t miss any. Then start putting numbers next to each one. How much are you spending on that aspect of your business? Until you know that, you won’t be able to consider how to cut costs.
Tips to manage and cut costs
- Use accounting software and regularly enter your information on to it so you have up to date figures.
- Always keep a strict eye on your costs and ensure there is a genuine business reason for every purchase.
- Assess your cash flow each week.
- Buy from suppliers who offer the best value – not always the cheapest.
- Check you’re not paying too much for costs such as telephone, insurance, and utilities.
- Review your costs to identify if there are any savings that can be made. Look for unused subscriptions, excess office expenses and any duplications in services you can stop without affecting your business efficiency.
- Lease don’t buy. This will mean you have the newest and most efficient equipment without having to use a lot of cash to acquire it. Also, the lessor will often cover repairs and maintenance as part of their agreement.
- Ask suppliers for extended payment terms. Many suppliers will increase their terms from 30 to 60 days for loyal customers.
- Become more efficient. If you can decrease the amount of time to produce a product or deliver a service, you will improve both your bottom line and your cash flow.
- Consider taking out a loan. This was something many businesses did during the pandemic. It is a decision that needs to be made after careful thought. It will protect your short-term cash flow but will need to be repaid in the future.
Cash flow is so important to business success that you always need to be aware of it when making decisions. Are there any steps you could put in place now to cut costs and improve your cash flow, making your business more efficient? If so, get started today.
Anna Goodwin @2021 All Rights Reserved.