The current economic climate presents a challenge to businesses on several fronts. Increasing overheads, restrictions on consumer spending and a changeable political climate is making financial planning seemingly impossible, as costs fluctuate on an almost daily basis.
As inflation increases and prices continue to rise, it has never been more important to manage cashflow to secure the future of your business. Retaining cashflow is the lifeblood of many successful enterprises, allowing you to make long-term decisions which can have a positive impact on the bottom line. But without the ability to plan and estimate cost increases, what steps can a business take to manage cashflow effectively?
Audit of overheads
Energy price rises and the cost of raw materials have been rising at a dramatic rate over the last few months. There are a number of ways to protect cashflow against price rises but a regular audit of overheads can be a simple way to re-establish the needs of your business and secure best prices.
While there’s little that organisations can do to impact the wholesale cost of oil and gas, there are simple and effective ways to trim utility bills once an audit is complete. From switching off energy vampires like laptops, monitors, dishwashers, printers and even kettles to switching to low-energy office lighting, getting the basics right can trim a meaningful sum off monthly overheads.
Basic staff training on turning off lights, making processes more efficient and simply being conscientious about energy consumption will often help the overall efforts to manage cashflow.
Supply chain management
Taking the time to look closely at your supplier relationships is also an important way of preventing cost creep over time. Suppliers are there to provide a service that meets your business needs and cost comparisons should be employed regularly to ensure best value for money. It can be easy to stick with a supplier when they are doing a great job but comparison with competitors through either a formal re-tendering process or a renegotiation can be hugely beneficial when it comes to reducing overheads.
Be aware, however, that other organisations are having to handle the rising cost of living, too. Squeezing contractors who are having to increase staff costs themselves may result in them looking to cut corners or simply end the relationship. So, do your homework on the market rate for different services and make sure that you are objective and fair.
A significant barrier to cashflow can be payment terms. If suppliers are on short payment terms but customers are on longer terms it can create a significant bottleneck for cashflow. Try to get both customers and suppliers on similar payment terms and where possible, keep track of repeatedly delinquent customers when it comes to settling invoices. If customers consistently pay late, they are stretching your payment terms without prior agreement and you are within your rights to renegotiate or alternatively, initiate a clause to charge interest on overdue payments.
Subscription cost creep
A number of business services are now payable via monthly subscriptions. Software is one area where small monthly fees for storage, access and usage costs can really add up to a significant cost outlay when multiplied across individual staff and throughout the year. Similar to an audit of overheads, take the time to review all of your SaaS (Software as a Service) contacts across the business to ensure that all costs are reasonable and that all of those services are necessary.
Some software licence fees are duplicated across multiple employees when one business licence will suffice. Equally, some software monthly usage fees can be so small that their financial impact can go unnoticed. Leaving businesses paying for software that can go unused for a long period of time.
A good IT consultant will help you look at software subscription fees and see where savings can be made and identify areas where you have unnecessary duplications.
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