How to manage cash flow through difficult times

Watch your cash flow at all times – good and bad

Every business will experience tough times. Small businesses are especially vulnerable because their management resources are usually thin, and they lack the tools to predict difficulties, and identify available remedies.

It is important to try to look ahead and see the ‘potholes’. What if you lose your biggest customer? Are you over-dependent on too few customers? What is your order pipeline looking like in the coming months and are you maintaining tight expenditure controls to minimise the risk of overspending?

Also, if you experience a strong recovery after a slow period, there are even greater dangers. For example, working capital is required to build stock, which must be paid for before your customers pay you. So just when you think things are OK, you hit the buffers.

The art of ‘running on empty’

No matter how good your planning, there may come a time when you must ‘run on empty’. The drill is simple enough:

The Three ‘c’s – to manage cash flow


Effective cash management is good housekeeping that ranges from controlling the number of employees you have, through keeping tight clamps on all expenditure, to the nitty-gritty of finding cash where you least expect it. For example, you may be able to encourage the people who owe you money to pay more promptly.

Or you could factor your outstanding debt invoices via companies that take over your debt collection whilst paying you immediately, less a small charge for buying your risk.

And if you have invested heavily in developing new processes or a new product or service, it may be possible to tap into relatively unknown Research & Development Grants available from government agencies.


It may be possible to agree deferred payment measures with your creditors. The simple hiring of a good Credit Controller (part-or full-time) may reap rich rewards.

If you have maintained good relations with your suppliers, this may be an easier challenge than imagined, because they have a vested interest in your sustainability.

What is required is a workable credit control plan to manage payments in and payments out, and this in turn requires a vital third element….


‘It’s good to talk’ – all too often, business owners think that it is best to cover up their difficulties for fear that their customers get to hear about it. The reverse is true. It is far better to discuss your situation with those who might be able to give support. For example your bank, your suppliers…and your customers.

It is better to explain the measures you are taking. Most people understand only too well the challenges you are facing because they may be facing similar. Better solutions might be found through collective action.

And you are less likely to lose staff if they know what is going on. They like to know that the management is controlling the situation and how they can help.

And finally…

Financial Reporting

No matter how small your business, it is essential to review monthly financial statements showing sales, cost, profit, and cash. The routine of a monthly review meeting also provides a good forum for effective communication.

It may go against the grain, but a bit of timely advice from an outside source can go a long way!


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