Cost and Cashflow Management will be critical to ensure the health of your business in the current economic environment.

Here’s our checklist to assist you to manage some of the financial challenges ahead.

  1. Employees and Wage cost
  • Consider retaining all employees through
  • Reduced hours
  • Utilising accrued leave
  • Leave without pay
  • Assistance provided by the Government (click here for details)
  • Sinking lid policy – reduction of staff numbers through natural attrition
  • Redundancy as a final option where the recession has resulted in a structural and permanent shift in the economy affecting your business
  1. Debtor Management and Credit Control
  • Review existing debtors and address any overdue debt
  • Ensure credit policy and collection procedures are working and clearly communicated to customers
  • Be circumspect with the extension of credit to customers
  1. Inventory Management
  • Review current inventory levels are appropriate and minimise where possible
  • Review purchasing policy in line with target inventory levels
  • Ensure composition of inventory is appropriate
  • Manage the balance between maintaining continuity of supply, lead times and inventory level
  • Cash-out old or obsolete inventory quickly
  1. Fixed asset purchases
  • Consider deferring new acquisitions if appropriate
  • Do not use cash to acquire new assets
  • Sell fixed assets that are surplus to requirements
  1. Suppliers
  • Ask suppliers whether they will consider extended terms or consignment stock
  • Ask for discounts
  1. Gross margin protection
  • Avoid unnecessary discounting in the hope of increasing revenue
  • Move away from low margin sales or work – stay out of a race to the bottom
  • Focus on your point of difference and quality service
  1. Costs and Overhead Management
  • Review overhead costs closely. These tend to quietly creep upwards during prosperous times
  • Review all contracts
  • Investigate alternate suppliers or negotiate with existing suppliers
  • Cease expenditure not fundamental to supporting your business
  1. Rent Expense
  • Open communication lines with your landlord
  • Ask for any sort of relief the landlord can provide – rent holidays, temporary or permanent rent reductions
  1. Stay in touch with your Bank
  • Review current facilities and anticipated working capital or fixed assets acquisition requirements
  • Engage in early discussions to provide the Bank with plenty of notice of any additional credit requirements
  • Demonstrate to the Bank the other business strategies adopted to manage the business
  1. Prepare a 12-month cashflow forecast
  • With so many moving parts along with the speed of change, a cashflow forecast is a powerful tool to assist your decision making. With a month by month analysis of your forecast cash position, forecast profit and loss account and balance sheet, actual results can be compared and determine whether strategies implemented are proving effective.

Please contact your Hayes Knight advisor if you wish to discuss how best to navigate your business through a recession or if you would like any clarification on the assistance available through the Government’s COVID-19 economic response package.

 


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