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This article answers the above question. Here, we’ll highlight 6 techniques your company can employ to manage cash during tough economic times and ensure its survival and continued success.
Understand and Forecast Your Cash Flow
The first thing you should do is gain a firm grasp of your company’s cash flow dynamics. Seek to understand when, where, and how money is coming in and going out of your business. This can help you forecast future financial situations. You can do so with tools like cash flow statements, budget forecasts, and financial modelling. They’ll give you a clear picture of your business’s financial health, allowing you to make informed decisions.Cut Unnecessary Costs
When the economy is going south, it’s vital to review all your operational costs and identify areas for potential savings. So, you’ll want to renegotiate contracts with suppliers, reduce discretionary spending, or even scale down operations in less profitable areas. However, as you trim costs, ensure that you don’t compromise on the quality of your products or services, as this could impact customer loyalty and long-term growth.Improve Receivables
A big part of effective cash management is getting your customers to pay you on time. Too many debts stuck in the pipeline may leave your enterprise in a dangerously illiquid position. Encourage early payments by offering discounts or incentives for prompt bill settlement. Additionally, maintain a robust follow-up system for overdue payments, and if necessary, consider tightening credit terms or insisting that new customers pay upfront for their purchases.Sign up for the Connect Nigeria daily newsletter
Monitor and Manage Inventory
Excessive inventory can tie up a considerable amount of cash, which could be used elsewhere in your business. To remedy this problem, implement inventory management systems that’ll help you avoid overstocking, and ensure you’re turning over inventory as quickly as possible. It’s also a good idea to negotiate better terms with your suppliers, such as longer payment periods or discounts on larger volumes.Leverage Technology
One good thing that contemporary technology has delivered to businesses is software tools and applications that assist them in managing their cash flow more effectively. These tools can automate various processes like invoicing, bill payments, and financial reporting, reducing errors, saving time, and allowing you to focus on strategic decision-making. Compare the options available to you, and go for one that meets your unique requirements.Build Cash Reserves
Even in the best of times, it’s a wise business strategy to build a cash reserve. This fund will be a safety net during unforeseen circumstances or economic downturns. Consider it a buffer that can help you manage business operations without disruption in times of crisis. You don’t have to begin by shifting lots of money into chests. Just take out a moderate portion of your business’s earnings and assign it to a special account. Do this over time, and your cash reserve will accumulate into something quite significant.Register to attend the CN Business Mixer
Final Words
Adequate cash management during difficult economic times is not just about survival—it’s about positioning your business to come out stronger when the economy rebounds. If you’re able to correctly understand and forecast cash flow, cut unnecessary costs, improve receivables, and build cash reserves, your business will sail through the stormy seas of financial turbulence and tend towards a more prosperous future. Featured Image Source: Quick BooksGot a suggestion? Contact us: editor@connectnigeria.com
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