Cash flow basics for a changing economy

Cash flow is the lifeblood of any business, and your small business can be vulnerable to cash flow issues. And economic conditions can be a major driver, whether it be negative or positive cash flow.

Without a steady flow of cash, your small business could struggle to meet your own financial obligations, attend to basic expenses, meet payroll, invest in growth and so much more.

If you are worried about cash flow in your small business this year, it is time to revisit some ways that can affect positive cash flow. While using a debt collection agency is one strategy, many more factors affect positive cash flow.

Economic conditions are going to affect your cash flow

Our changing economy has probably made a significant impact on your small business cash flow and as it stands right now, experts agree that this could continue for some time. The economy affects consumer spending, access to credit and other financial decisions a family may need to make.

Consumer spending:

During a economic downturn, you will see consumers adjust their spending habits. Depending on your industry, it’s obvious to assume that you could see lower sales. And because in 2023, we have seen a number of industries conduct layoffs, those customers you have relied on, may have seen an immediate impact in their take home pay and employment status.

Access to credit:

If your customers are relying on credit to pay their bills, including using credit cards, their access to credit may be tightening. Many consumers in a down economy overextend themselves and with interest rates rising, that can lead to less credit available to consumers. And in some cases, a lowering of credit limits.

Inflation is affecting all consumers:

One clear indicator in our economy that affects consumers immediately is inflation. This causes consumers to pay more for basic needs such as food, clothing and other necessary expenses. Because of this basic indicator, inflation will affect your cash flow.

Double down on slow paying customers

One of your small business’s biggest cash flow challenges is slow-paying customers. After all, we know this because we are a debt collection agency. You may be seeing it already but you are going to have a percentage of customers that are going to pay slower and of course some of them not pay you at all. Continued forces like we have mentioned including employment status, inflation and other factors are going to force consumers to make tough decisions on money.

But you have to stay the course on getting your customers to pay. That involves improving your internal procedures, payment options, expectations of payments and using a third party debt collection agency. These are must-haves in a down economy.

Seasonal fluctuations will continue to affect your cash flow

Many small businesses experience seasonal revenue fluctuations, making it difficult to maintain a consistent cash flow. If you’re one of these businesses then you know this well, such as the lawn care debt collections we provide numerous businesses. Because of our changing economy you will need to double down on budgeting more effectively to get you through the off seasons.

Keep a closer eye on overhead expenses

Overhead costs while unavoidable, can be a drain on small business cash flow. Rent, utilities, and insurance are all examples of overhead costs that your small business must pay regardless of your revenue and cash flow. You know this because you’re paying the bills. Meet with your accountant or CPA and continue to monitor these expenses, and if you’re having challenges, see what you can do to negotiate lowering these expenses.

Inventory management is a must

Inventory management seems to be a moving target with our current economy and the impact of inflation. As you know well, your customers are not the only ones dealing with the negative effects of inflation. If your business is managing any type of inventory, another great way to manage that more effectively is to work closely with your CPA and get a better handle on forecasting, monitoring sales trends and other factors that can tighten up any type of inventory you use.

We again use the example of the businesses we provide lawn care debt collections. Many require a tremendous amount of inventory and supplies to do their job. It’s important to manage these expenses effectively.

Growth and expansion affect cash flow

Did you have plans to grow your business or expand operations and then the economy changed? You are not alone and many businesses have encountered this. Of course a solid expansion and growth plan can lead to increased revenue and profitability but it also requires in many cases substantial upfront investments.

If the cash flow in your business is suffering because of stalled the growth plans, you’ll need to work with your trusted advisors to manage this properly. That can include reorganizing financing you obtained, revisiting your business plan for growth, and possibly adjusting the size and scope of your expansion plans.

Your business should always be monitoring cash flow but when it comes to turbulent times and uncertain economies, monitoring all areas of cash flow should be a top priority for you, your management team and your financial trusted advisors.