In times of crisis, money is scarce and in high demand. People tend to ‘hoard money’, and the saying ‘money must keep circulating’ is a taboo for the average SME owner. The fear of running out of money is justified, as this can lead to bankruptcy. In a sense, the cash position indicates the extent of a company’s financial flexibility.
Cash flow planning
Last week, we already hinted at understanding your company’s profitability model during crises such as COVID-19. Cash flow planning is also vital for keeping a close eye on your business’s financial flexibility. Having a clear understanding of cash flow enables you to identify when a shortfall in funds arises and what is causing it. As a result, you have time to take action and put measures in place. On the other hand, your business may find itself with a cash surplus. In the current climate, where interest rates yield ‘nothing’, you could, for example, go ahead with that long-delayed investment, make that one acquisition or pay out that extra dividend.
A more in-depth understanding of cash flow can be gained by using scenario analyses, in which variables such as profitability and accounts receivable/payable policies are taken into account. In VWG We have the analytical models to draw up a cash flow forecast for you and to determine what your financial flexibility will look like in the coming period.
Measures to improve cash flow
In times when a cash shortfall is anticipated, there are various areas in which you can and must take action. Key levers you can pull yourself include: accounts receivable policy, accounts payable policy, stock management, the sale of unnecessary fixed assets, (temporary) financing, deferral of payments (such as loan repayments, taxes, accommodation costs, etc.) as well as making use of any available grants and/or support schemes.
Different measures apply in each situation. In the case of VWG We can help you identify the appropriate, responsible measures and calculate the impact these will have on your cash flow planning. To do so, please contact Michiel Segers or Sjoerd Verheijen.
After all, cash is king.