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Instantly improve your cash flow despite record inflation rates

By Martin Baillie – Business Growth Specialist and ActionCOACH Bury St Edmunds

As the cost implications of record inflation start to hit, how can business owners improve their cash flow to ensure the business remains financially viable and able to support them?

The U.K.’s consumer prices index increased by 3.2% in the 12 months to August, the largest ever month-on-month increase since January 1997, when records began.*

Some commentators have suggested that the surge may be a temporary change, in part due to some of the economic stimulus measures the Government introduced during the pandemic like the Eat Out to Help Out Scheme.

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Others, however, argue that this could be a more sustained trend, particularly on the back of the increase in an energy price cap and tax levy on the tourism industry. Add to that the rising fuel prices and the recently announced increase in National Health contributions, and consumers are really starting to feel the pinch.

Martin Baillie
Martin Baillie

So what does this mean for you as a small business owner?

As inflation rises, you may see an increase in the cost of any materials you purchase and experience supply shortages as demand increases in anticipation of higher prices ahead and distribution costs of raw materials become more onerous. 

Coupled with that your employees will be looking deep into their wallets, wondering when a salary increase will become non-negotiable – either it happens, or they leave for your competitor who will meet their salary needs. Recruitment also becomes tougher as quality candidates opt to remain where they are rather than taking the risk on a new opportunity. 

Faced with these financial pressures, many business owners will be taking a long, hard look at their cash flow budget. And rightly so.

Cash flow budgeting – can your business support you?

A cash flow budget is a projection of your business’s cash inflows and outflows over a certain period of time. A typical cash flow budget predicts the anticipated cash receipts and disbursements of a business on a month-to-month basis. However, a cash flow budget

could predict the cash inflows and outflows on a weekly or daily basis.

The primary purpose of using a cash flow budget is to predict your business’s ability to take in more cash than it pays out. This will give you some indication of your business’s ability to create the resources necessary for expansion, or its ability to support you, the

business owner.

Improving your cash flow instantly

If your cash flow budget is not looking as healthy as you would like, here are 4 areas where you can make instant improvements.

1 – Receivables

  • Invoice as soon as the work is complete or the order fulfilled
  • Offer incentives for early payments
  • Impose penalties for late payments
  • Be more selective whom you offer credit to and only offer it once a credit check has been completed
  • Consider multiple-stage payments spread across the duration of the work
  • Work with your credit control team to understand where the challenges lie and support them with solutions

2 – Inventory

  • Sell off or return excess / obsolete inventory
  • Reduce inventory in stores and manage Work in Progress tighter
  • Have ownership of the goods pass to the customer as soon as assembly begins
  • Relook at your ordering processes for raw materials and consider ‘Just in Time’ for regular deliveries of only what you need at any given time

3 – Payables

  • Negotiated extended credit terms with your suppliers
  • Keep overheads as low as possible, match an increase in expenditure with an increase in sales goals
  • Capitalise on early settlement discounts
  • Pay your suppliers promptly to build up a solid credit record, then ask for an increased credit limit

4 – Financing

  • Speak to your bank manager and try to extend debt repayment terms
  • At the same time, renegotiate bank charges
  • Sell off surplus assets or even better, make them productive somehow
  • Explore alternative finance options like leasing

Finally, question every cost – is it an investment in your business or just an expense?

Some of these tips may sound simple, but if you aren’t implementing them, you may be compromising the financial health of your business. And no one with real business growth in mind should ever risk that.

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