Sponsored: Managing business cash flow challenges in a stressed economy

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While the world is beginning to return to a sense of normalcy as the effects of the pandemic wane, the business world still faces a plethora of challenges. Business owners who worked tirelessly to survive the impacts of the pandemic and are now facing rising interest rates, inflation and more.

As we wade through these challenges, businesses may need to prepare for the potential of an economic downturn or recession as the Fed continues to work to combat inflation.

Below are some key financial considerations for businesses as we operate in a stressed economy.

Business cash flow is critical

Cash and liquidity are king in today’s business world. Many business owners focused much of spring 2024 on rising interest rates, supply chain constraints and taking stock of liquidity. Now is the time to focus on adjusting expenses and processes to generate and protect business cash flow.

Assess your current cash and income sources

Business profits are not the same as cash flow, so don’t look to your profit/loss statements to determine if you have enough cash to cover you. Dig into the details of your business’s financial statements to see what you have in cash reserves each month, and what your income/payment cycle looks like.

Your cash flow projections should be able to tell you the cash you have right now, and a projection for what your cash will likely look like in six months. If you’re in an industry with long payment cycles, like freight or leasing companies, you will likely need to forecast more aggressively to truly see what your business cash flow and income amount to.

Protect your cash and liquidity

With talks of a potential recession on the horizon, uncertainty rules the day, which means it’s critical to maintain enough cash to handle your day-to-day operations. Defending your cash may be just as important as generating it as we look at a potentially longer recovery timeline.

Some strategies to consider include:

  • Pausing some larger or long-term business plans that involve taking on more debt. Granted, some debt may be necessary to adapt your business to new challenges. But it may not be the right time to expand, add locations, update equipment, etc. if you don’t have a healthy cash reserve to lean on.
  • Tightening your accounts receivables processes to clean up your payment pipeline. This could include reducing or halting consumer credit extension programs, creating and applying standard late payment fees and ensuring invoices are accurate from the get-go.
  • Innovating for digital payment acceptance to access payments faster. If your business cash flow still relies on paper—paper invoices, paper checks, paper anything—it could be significantly slowing your payment cycle.

Analyze spending needs

Budget cuts. Shudder. No one likes them, but nearly all businesses need to implement them at some point. If you haven’t yet revisited your 2024 budget, you are overdue in facing the music. What may have looked like a perfectly reasonable allocation in December 2023 is likely no longer on the docket for the year. Conversely, funds you may have set aside for a new project may have been absorbed into expenses related to market changes, economic pressures and global events.

One tip to consider: don’t just start slashing willy-nilly. Being strategic about budget cuts now can help your business recover when the market picks back up.

  • Review costs associated with production or supply chain. Are there opportunities to scale back or be more efficient?
  • Analyze fixed expenses (are they really “fixed”?). For example, look at insurance policies, subscriptions, vendor services and retainers and start conversations to trim where possible.
  • Innovate your marketing techniques. A knee-jerk reaction could be to cut large funds from marketing, but that could hamstring you later. Instead, consider ways to cut costs by optimizing digital and social opportunities during this time of digital living and shopping.

Consider ways to generate cash

Once you have a handle on your current business cash flow, you can turn your eye to generating more income. While it’s a tough market for many industries, it’s important to stay nimble, highly aware of customer needs and strategic in your decisions.

Even if your business is struggling to capture new clients, there may be some ways to optimize sales and access cash.

  • Consider adapting sales processes for a new consumer. Your client audience is likely facing just as many challenges as your business in the current environment. It may be helpful to employ some of the business tactics used after the 2008 crisis, like creating or extending return policies and satisfaction guarantees to help purchase-worried customers feel more confident.
  • Rethink pricing. It may make sense to review your pricing structures—whether it’s to increase, decrease or restructure. For instance, some companies have shifted to a subscription model to help produce fixed monthly income while enticing clients with a fixed monthly expense.
  • Consider selling or refinancing your business assets. While it may not be the most enjoyable option, selling unnecessary equipment or other assets could help boost liquidity.

As you take stock of your liquidity and consider strategies for the remainder of 2024, now is the time to be in touch with your business banker. Your banking partner can help your plan for managing market uncertainty and help you build contingency plans for liquidity, debt management, accounts receivable tactics and more.

This article is educational only. Please consult your financial and tax professionals. If you are interested in learning more about how UMB can help your business, visit our website. 

Adam McDiarmid is president of small to medium business at UMB Bank. In this role, he is responsible for the implementation of the strategic business plan for serving small and mid-market businesses across the footprint, including portfolio growth, performance quality and managing day-to-day operations. He has more than 18 years of experience in the financial services industry. He earned a bachelor’s degree in business from the University of South Carolina.