The key components to managing cash flow and revenue growth

Over the next few weeks, I'll be providing tips and strategies for small businesses and startups to hopefully help everyone navigate through these challenging times.

Today's blog will focus on how your startup can start planning how to survive a recession today.

Economists predicted an economic downturn in 2019 while echoing the impacts of a repeat 2008 global financial crisis. This would inevitably be the second recession in a 12 year period. Let that sink in. At this point, it’s either “fight or flight”. Can your business survive the recession? One thing that people who are faced with adversity knows how to do well is adapt, entrepreneurs are one of them.

It’s time to start thinking about positioning your company to survive a recession. Companies may have to pivot, creating new business models to adapt with the changes in the market and consumer behavior. Millions of consumers are currently impacted by the coronavirus pandemic, this includes job loss. Fewer jobs means that customers have less money and reserves. If you’re a Founder or small business owner, your first priority is your business and family.

“What happens next”?

Now is the time to start asking the tough questions about your business. Let’s revisit your business plan, including revenue generating model.

First, cash flow.

C.R.E.A.M Cash rules everything around me! What is “Cash Flow”? Cash Flow is the movement of money in and out of your business. It is the life line that keeps your company afloat. As your business grows and sales increase, creating a Cash Flow Analysis helps to effectively manage, maintain and operate your business.

Inflow and Outflow are defined as:

Inflow comes from operations such as the sale of goods and services, loans, lines of credit, and asset sales.
Outflow occurs during operations such as business expenditures, loan payments, and business purchases.

Lately, we’ve seen “business experts”, especially on social media, advising entrepreneurs to go out and increase their business lines of credit. The reason; during a recession, banks get tighter with lending and credit. Some banks will start freezing credit lines to mitigate risks associate with defaulted loan payments.

Prior to taking out any loan, or even increasing your credit limits, look at your business plan first.

Look at your operations

Start with the company’s operations. How much revenue is coming in each month? Review and analyze carefully the inflow of cash. The Inflow of cash includes, sale of goods and services, loans, lines of credit, and asset sales.
Next, the Outflow of cash. How much cash are you spending per month? The Outflow of cash is the process in which the company operates business expenditures, consultants, travel, supplies, loan payments, and business purchases.

If you’re making more money than you’re spending, you have positive cash flow. If you have the opposite, calculate the number of months your company can survive with the monthly cash flow, minus expenses.

Keep Cash on hand

With the pandemic and recession crisis looming, it’s best to be as prepared as possible. Start saving cash to pay back interest on loans, and other expenditures.

Payments

Overdue invoices can keep businesses in the red. Stay on top of your invoices to avoid delinquent payments! Create procedures for follow-up, escalations, and past due balances that exceed 15, 30, 45 days. Discount early payments (no more than 5%) to incentivize vendors to make payments earlier.

Suppliers

Now might be the time to renegotiate your terms with suppliers. Find out if suppliers are willing to offer lower prices, or even extending payment terms from 15 days to 45 days. Paying your bills later gives you a little more time to pay other expenses.

Control your spending

Reduce your expenses to avoid burning through cash reserves. Even “small purchases” can add up. Find ways to cut costs where it won’t affect your business nor operations. Look at subscription services, and other monthly expenses to find out where you can save additional money.

As of right now, there’s a lot of uncertainty around the market. Questions you should be asking right about your consumer spending: What companies are closing? What companies have furloughed their workforce? What companies are laying off their employees? The implications will affect sales cycles, in turn, revenue. What we do know is, customer sales cycles are likely to change. You may find yourself burning through more money than expected. Just prepare for the unexpected.

Test your new business models early. Whatever your product market fit was last month, it may have vastly changed as of today.

Choosing Credit Vs Cash

Using credit for making purchases in your business vs. cash has its advantages. For example, with credit, you have access to funds that aren’t readily available such as cash. During the startup phase of your business, cash can be “scarce”. Sales takes time to generate. Credit may be your next option. Its best practice to preserve as much cash as possible in the event that your credit lines are maxed out, or if the bank decides to cut your credit line down from its original credit limit. These unforeseen circumstances can leave you cash strapped if you aren’t prepared. Here are some short-term planning cash management tips:

Go over your financial planning and forecasting plan
Create a Business Model that incorporates financial planning and forecasting

If your business is at the growth stage, meaning you have a steady flow of income and customers, create a business model for financial planning and forecasting. Questions to help you get started with your financial planning and forecasting plan:

What percentage of revenue is currently going towards expenses such as payroll, supplies, office or retail space?
What percentage of revenue have you currently spent on building your business, such as expansion, recruiting?
What percentage of revenue did you anticipate for the future, developing new products and services?
What expenses can you cut back on today that will not impact operations?

After reviewing your financial planning and forecasting plan, you should be able to determine the “health” of your company. Are you currently in the position to continue operating your business? If so, for how long? How will your company continue to generate cash flow?

Startups survived back in 2008 because they were able to adapt to the market quickly. Test your new business models early. Whatever your product market fit was last month, it may have vastly changed as of today. The bright side of this, there may be new value to add to the market. Perhaps you can alter your products and services. Explore a new business model and test your concept.

Ideas for creating revenue streams

Repackage products or services

A great way to introduce or to upgrade your products or services is with repackaging them. For example, if you offer courses, include an eBook with the course along with helpful templates.

Partner with other brands

Strategic partnerships can be beneficial for small business owners and startups. When companies align with like-minded brands, it’s an opportunity to grow both companies to new levels. Collaborations help grow your network, while providing companies with exposure to new target markets.

Consult your services

Offer your level of expertise as a consultant. Consulting is such a broad industry that can lead to success especially if you’re a niche consulting firm.

Offer training

Everyone has a skill that they can teach someone. Offer your level of expertise in the form of a training in area of your business. People want to know how you got started in your business. Train business owners on an area of business that you feel most comfortable teaching like marketing or sales.

Affiliate Marketing

·What is “Affiliate Marketing”? Affiliate marketing is the process of earning a commission by promoting other people’s (or company’s) products. The Break down, you’re basically promoting a product to your customers and earning a profit from each sale. The true benefits of Affiliate Marketing is that you don’t have to invest any time nor money into selling the product or service.

Google AdSense

Google AdSense is an advertising placement service. Advertisers pay a fee to your company for advertising their products or services on your website. How does it work? You select the ad you want on your site. You can choose, text, display, videos or links. You will then select where you want the Ad displayed on your website. Advertisers will then bid on your ad space in a “real time auction”. Once the “bidder” wins, the ad will be placed on your website. You automatically earn money when your Ad is seen or clicked on by visitors. You get paid once a certain number of clicks or views have accrued.

Gift Cards

The benefit of selling gift cards is that you’re getting the money upfront however, one thing to consider is the down time in your business or when sales are slow. You want to be strategic about offering gift cards around a time that won’t affect your bottom line in your business. Always include an expiration date and offer gift cards periodically.

Speaking Engagements

Speaking engagements can help build your personal and company brand. Conference organizers are producing events online. Research online conferences and events in your market with your ideal target audience. Ask the organizers if they have a budget for speakers and negotiate a price. If you have no experience as a speaker, you can start with a few unpaid gigs to help you get familiar with public speaking and virtual conferences.

Focus on repeat customers

Repeat customers are essential to keeping your business thriving. Focus on cultivating relationships with customers through engagement, tailored messaging, and follow-up, to stay connected. When you’re on the minds of your customers they’re more likely to continue purchasing the company’s products and services. Always check-in to obtain feedback on products and services. Customers want to be heard and know that they’re feedback will be taken into consideration.

Add complimentary services or products

To help draw in new customers and maintain your existing customer base, offer complimentary services or products. Choose products and services that enhance one another. For example, if you’re a fitness expert add meal prep eBooks complete with healthy recipes for clients who sign up for a 90-day Boot camp.

My suggestion is, don’t wait until it’s too late to start planning for the recession. Early preparation enables companies to position themselves to survive a downturn in the market. Companies may have to pivot, creating new business models to adapt with the changes in the market and consumer behavior. Make sure that your business model clearly defines what you’re selling, how you’re selling it, when and how you’ll collect payments, and your strategy for growth.