Stagflation: Why it is more important than ever to monitor cash

Increasing rates have given rise to higher borrowing costs. 

With the government trying to ease pressure on rapidly upward moving prices, it is likely that the trend will continue until inflation is under control.

Given that the battle to reduce unemployment levels and stop rising costs is being exacerbated by Supply Chain issues due to several Global crisis; Small Business owners face much uncertainty ahead.

Managing cash flow will prove to be crucial to combat rising borrowing costs. 

We all know it is difficult to find good talent nowadays. You may have Freelancers working for you, suppliers, and debt service payments to make.

Business owners should to the best of their ability make their resources stretch as far as possible;

1. Pay bills on their due date, take advantage of early payments discounts.

Most firms charge late payment fees and interest for not making a payment by the due date. Make sure you pay your suppliers on time; negotiate favourable credit terms. Try to maximize credit from Suppliers and Minimize the time your customers spend to pay you. 

If unable to pay, assess your cost of borrowing and make a decision on which suppliers are to be given priority. 

2. Monitor your Budget- Review redundant expenses

The Big Guys spends thousands, maybe in the millions to monitor and explain their budget. History has taught us that trends exist, there are patterns; which is why past performance can often provide insight on what to do next. 

In a world of subscription services, there may be some services you don’t require anymore. Reviewing your expenses will shed some light on some of these expenses and provide you with a better picture of your cash flow.

E.g should you be paying for a Zoom, Microsoft and Google subscription when cash is tight? 

Or are your automation Ai driven software providing the leads, results, revenue and intended ROI? These are items that can better your marketing while improving your bottom line. Consider annual discounts, founders prices before cancelling any memberships. As with any business decision, make a quantitative analysis, followed by a qualitative one. 

3. Plan for TAX BEFORE your year-end.

If you are churning a profit, then your tax rate will likely be above 12%- at time of writing and could go as high as 50% or more. Needless to say, it is CRITICAL to understand the ins and outs of tax legislation and take advantage of available mechanisms.

On blog  E.g if you are a Small Business owner considering a move, should your company move offices first then you? Did you know that costs of selling a principal residence may be a non-taxable benefit. Therefore having this tax knowledge is critical. How about compensation?  Are dividends or salaries better? These are questions that can't wait until it's time to file your taxes.

4. Lease/Finance Major Purchases

If you are planning a big purchase, always consider leasing or financing your purchase. If the item will last more than 1 year, you should ideally discuss payment terms that mimick the lifespan of your purchase aka asset. That way the revenue generated from that asset will be used to service the cost of purchasing or leasing the asset. Always assess the difference between leasing and financing a major purchase such as equipment or even a building. 

5. Sell off Receivables for Quick cash

In times when cash really is not positive but your accounts receivable is high you may consider selling your accounts receivable at a discount to agencies that are willing to buy those receivables from you at a discount that way, you will free up some cash and alleviate yourself from the trouble of having to collect your accounts receivable keep in mind that you might be subject to discount when selling your receivables. Keep in mind that these should be used sparingly due to the steep discounts involved when assigning your receivables. 

 

6. Review your cost of borrowing.

Many business owners get complacent when it comes to their mortgages or credit. It is very important to understand that if you're able to keep cash in your pocket or distributed among your employees that is better than having to pay banking fees or interest charges. It is always a good idea for business owners to understand the cost of borrowing since as they do business their credit improves and as they make on-time payments they are able to negotiate favorable terms with the financial institutions so always make sure that if they have debts that they are always looking for the lowest cost of borrowing.

7. Measure ROI

It is very always critical to make sure that your revenue is exceeding your expenses if you want your business to survive. ROI means the return of investment.

That means you are investing money in exchange for a return.

For example, investing money in equipment, in employees,  etc in exchange for producing a good or providing a service that will generate revenue.

That's the idea of a business so when you're measuring your ROI you're measuring the fact that your revenue is in fact above your expenses and it's providing the return of investment for your potential shareholders and for yourself to meet your personal expenses or even to meet your lenders servicing costs. Assessing your return on investment is very important. If you do not have a measure of assessing your returns; you need to build Key Performance Indicators for your business that will give an accurate picture of the state of your business. These KPIs when monitored correctly can smooth your business processes. 

We offer our Accounting, Marketing and coaching services across Canada Virtually. We are located in the Forest City of London Ontario and are glad to offer in person services to Small Businesses in the Middlesex region of Ontario.