In today’s challenging economic climate, it’s essential for businesses to proactively manage their cash flow to ensure they can handle the road ahead. With the uncertainty of the recession, companies should make adjustments now to offset the prospect of reduced revenue, slower growth, and inflating expenses. Here are a few tactics and strategies to consider:
- Run a break-even analysis: Assume that revenue will be flat for the foreseeable future and calculate the level of expense that can be supported. Then go through the exercise to figure out how much you need to cut in expenses and where to cut so that you can run at a break-even model until you see things turning around.
- There are a lot of different ways to reduce your expenses; consider doing all of these:
- Implement a pay cut across the entire company or take everyone to reduced time. This is always a difficult decision, but I find employees understand when you give them the proper context, and they would instead have reduced pay and keep their benefits than not have a job at all.
- Reduce founder compensation.
- Freeze all travel, meals, and entertainment spending.
- Renegotiate with major vendors to see if they will reduce their prices for six months. Most vendors would rather have the business than lose a customer.
- Review all of your expense line items, including software licenses, and cancel the things that are not necessary, making sure you are only paying for active seats.
- Diversify revenue:
- Consider adding new service lines where you possibly charge for your team’s time.
- Take your product to new markets or customer segments.
- Develop a weekly cash flow analysis so you can see the runway and make adjustments and time payments accordingly.
In times of uncertainty, it is critical that companies act quickly and make changes rapidly. I find that companies wait too long to make changes and run out of time to make a meaningful impact to extend their cash runway. If you need assistance with making more informed decisions and modeling out the scenarios, it’s essential to talk to a financial professional. They can help you identify areas of your business where you can cut costs and help you develop a plan to extend your cash runway and/or operate on a break-even plan.