In the fourth part of our series on cash flow management, we discuss the difference between products and services that are essential to your business, and those that are just nice to have.
Part four: Must have or lust have
We all have different priorities when it comes to spending money. One man’s essential is another man’s luxury. The important thing is to know which products and services you and your business can do without when necessary.
Reduce your outgoings
Having a clear understanding of your income and outgoings is key. The first step is to make a list of everything your business spends on weekly, monthly and annually, then work your way through it and highlight the absolute essentials in one colour, and the nice-to-haves in another.
If you notice any subscriptions you don’t use or need, take the time to cancel them now. Keep your list updated and you’ll have a ready-made list of non-essentials you can pause or cancel without too much of an impact on your business if the time ever comes to cut costs.
Review your contracts
Spend some time looking through your current contracts and comb through the terms and conditions looking for any opportunity to renegotiate your deals. You might even consider consolidating your suppliers to give you more negotiating power and better prices for larger orders.
When signing new contracts, make sure you’re getting the best possible terms and prices. Don’t settle for the first quote, get a few and make a detailed comparison. But check you’re getting everything you need before opting for the lowest price—if it sounds too good to be true, it probably is.
Restructure the business
Making redundancies is often a last resort, but it’s important to know all your options. It may be better to lay off a small number of staff, sending them on to their next chapter with a great reference and a small severance package, than to be forced to close your doors and send all of your staff home with nothing but a thank you for their years of hard work and loyalty.
It’s also important to consider whether your business could cope if your sales suddenly increased. Would you be able to take on more staff or outsource the work? It might be a good idea to draft a short business plan for each eventuality, mapping out the steps you’d need to take if the worst (or best) were to happen.
You’re worth it
Some investments are simply worth it, so cutting all non-essential spending and minimising your outgoings isn’t always the right choice. For example, new equipment or a piece of software such as a CRM might be a large investment, but if it improves your processes, boosts productivity or increases your output, then it could be more financially beneficial for your business to make that investment.
On the other hand, recruiting and retaining quality staff members requires investment, so you might decide to reward your team rather than put that money back into the business. After all, your business wouldn’t be a success without the people working in it.
It’s a balance that only you can find, but it’s essential to managing your cash flow effectively.
The next post in our cash flow management series, Working capital: Make it work for you, will take a closer look at assets and liabilities, and how you can release some of the funds tied up in working capital when you need to.
Don’t want to wait? Click here to get our guide, Happiness is a Positive Cash Flow.
Get in touch if you’d like to discuss your individual circumstances and get some independent, impartial advice on cash flow management.