CHANGING BUSINESS CYCLES? 4 WAYS TO PREPARE YOUR CASH FLOW

A healthy cash flow is a part of having a healthy business. Here are a few ways you can stay on top of your cash flow to ensure smooth transitions between business cycles.

Healthy cash flow is always critical, but it assumes even more importance when the economy is in flux.

After a decade of steady economic expansion, the possibility of a downturn should be considered in your business cash-flow plans.

Questions about how long the expansion will continue, uncertainty as national elections loom and the effects of tariff wars are all affecting business owners.

Not only should business owners start planning for a shift in the economic winds, they should start now.

With that in mind, here are four ways to manage your business cash flow through the ups and downs.

Watch your customers

Business owners who worry about future business cycle shifts focus closely on their customers. By being sensitive to trends in your field, focus on the part that is growing.

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Reduce your business expenses

In addition to seeking new markets, work to cut costs. You can use an automated phone system instead of a human receptionist, reduced office supply orders and combed your spending for inefficiencies. Having good timely data is crucial.

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Refine credit terms

Customer credit is another area cash flow managers examine to prepare for economic uncertainty.

Experts stresses the importance of watching customers’ performance carefully, and taking action swiftly if a fast payer starts paying late. However, rather than cutting off customers and driving them to rivals, it may be wiser to help customers through a rough patch so they remain with you.

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Keep cash and credit available

It’s also important to maintain healthy cash reserves and, while business is good, consider obtaining a business credit card or expanding an existing credit line. It’s obviously easier to get credit approval when cash flow is strong than when a business is struggling to pay its bills.

Other Cash-Flow Concerns

Opportunity can arise in any economic environment. If a competitor struggles, it may offer the chance to acquire a rival at a bargain price. When competitors go under, surviving firms may be able to hire sought-after talent without buying the whole company.

And in addition to scrutinizing receivables for slow payers, pre-recession may be an ideal time to encourage faster turnaround on invoices from healthy customers. Companies consider offering a discount for paying in 30 days instead of 60 days or otherwise accelerating payment.

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You have to be careful, expert suggest. Some customers may get the discount and then slip back and still want the discount. So you have to stay on top of collections.Being careful is a central theme of how to manage cash flow during uncertain economic times. 

Growing too fast or taking on too much debt before a recession can hamstring a business. But being overly conservative and reining in growth when competitors are exploiting a continuing expansion can push a business to the back of the pack.

All told, information may be the most valuable commodity when preparing for a shift in economic fortunes. Even more than cash or credit, what distinguishes winners from also-rans when business cycles evolve could be having the data that will identify trends and suggest the optimal course of action.