6 Cash Flow Strategies to Weather Financial Crisis

By Gilbert Gonzalez

December 15, 2022

You’ve heard the old axiom, “cash is king.” In an economic slowdown verging on recession, such as we’re facing now, it’s time to update that saying to: “cash flow is king.” The question is, how do you keep a steady stream of revenue rolling in when the economic outlook is so uncertain?

The answer involves plenty of planning and clear communication. Here are six practical strategies any business can use during turbulent times — whether now or in the future — to plan for the worst while hoping for the best.

1. Tap Into Your Reserves

A healthy line of credit is essential: It can make or break a business during a downturn, ensuring vendors and employees are paid on time, and the business keeps the lights on. The advantages of tapping into credit must be balanced with other cost-conscious decisions; if you’re not already working with a firm to support you, Grimbleby Coleman can help.

But what if you don’t have a line of credit? It’s not ideal, but opening a new line during a downturn is not impossible. The lender will probably require much more evidence of your business’s profitability and stability. Be prepared for tough questions and to fulfill evidence requests.

When the economy recovers, work with lenders to expand your line of credit. Lenders usually have looser purse strings when the economy is in full swing.

2. Lower Your Expectations (But Explore Opportunities)

“If you’re not growing, you’re dying.” Business owners who stick to that philosophy will find themselves at a loss when the economy cools. Instead, it’s time to get realistic — constant upward growth is an unattainable goal. Strategically slowing or halting growth can build a business over the long term. 

Rather than losing sleep during slower economic periods, think of them as opportunities to evolve. How are competitors surviving, and do their strategies offer any lessons? Do customers need new or updated products, services, or solutions? Even though marketing and technology improvements are expensive, could the ROI make such investments worth the money?

When in doubt, speak with your CPA to plan your financial strategy for the weeks, months, and years ahead. Grimbleby Coleman has been in business for 50 years and has helped innumerable businesses weather rough economic patches.

3. Get Obsessive About Financial Details

Keeping strict tabs on money going in and out is the only way to truly understand what’s happening day-to-day in your business — and is invaluable when planning ahead. The success of a company, aside from the unique product or service it offers, lies in managing profit margins, revenue collections, and supplier payments with great precision. Creating realistic budgets and always reviewing the performance of prior years is a must. You’ll develop a better budget and be more capable of correcting any mistake.

It’s important to control how many days it takes for revenue to be collected and balance with monies to be paid out. If possible, incentivize clients to pre-pay for services to avoid a cash flow crunch; if such a strategy doesn’t work, consider implementing payment plans to keep cash flow steady.

Always pay accounts payable when the bill is due, not ahead of time. Doing so will help your business have cash on hand throughout the month. Finally, it’s important to be honest with yourself about cash flow issues so you can elaborate on a plan to deal with them. 

Accounting software such as QuickBooks offers easy ways to track your financials and collect real-time information; if you haven’t already set up a dashboard to easily access such data, our Client Accounting Services team can assist you.

4. Know When To Make Cuts

Eliminating employees should be a last resort, especially given the ongoing worker shortage. If possible, cut worker hours before terminating employees; finding and retraining workers when the crisis abates will be costly and time-consuming.

A solid plan can help you make wise choices during an emotional process. Make changes to the workforce only when the timing aligns with your plan and financial picture. Above all, be honest with your employees about the company’s outlook and work with them to develop solutions. You’ll build loyalty and morale in the process.

5. Choose Your Associates Wisely

Businesses around the world have been muddling through supply chain issues since the early days of the pandemic. After years of increasing global trade and improved logistics, the current supply chain crisis has prompted many business owners to think more carefully about who they deal with on the supply side — as well as what their customers truly need and want.

As a business owner, ask yourself a few hard questions:

  1. How well do I know my suppliers? Do I understand their strengths and weaknesses as members of my extended team?
  2. Have my suppliers shared their backup plans with me? Do they have a strategy in place to deal with problems?
  3. Do my customers have plans in place for rocky economic times? Can they share how they will pay me if they hit a shortfall?
  4. Am I able to be fully honest with suppliers and customers, and do I feel like they can do the same with me? If not, what would improve communication?

Stick with the suppliers and customers who are open, honest, and have plans in place. When times get tough, the people who prize integrity and clear communication will help you get through.

6. Be Ready To Emerge Stronger

Slowdowns are generally temporary. Do you have a plan for your business once the economic picture turns rosy again? It might seem odd to plan ahead when times are challenging, but doing so will help you hit the ground running in the future. Do you have additional products and services you’d like to roll out? Will you need to invest in infrastructure or employees? How can you replenish your financial reserves so you’re ready for the next crisis?

With a clear plan, you can avoid lost time and start implementing changes as soon as possible. You’ll also be better prepared for the next economic slump — and the one after that.

Get In Touch

Longevity is one of the great advantages of working with Grimbleby Coleman. As a multi-generational business, we advise businesses over the long term and have built a wealth of institutional knowledge and financial wisdom. Our long-term partnerships with businesses allow us to see the big picture over time, even when the future looks bleak. Our goal is to help our clients thrive no matter what. Contact us if you’re looking for a partner to help you make the most of every rise and fall of the economy. We’re happy to help.