A combination of, but not limited to, the economic downturn, Brexit, and a lockdown set to last until June. Pressures that are highlighted by the need for government assistance and demonstrated by the Chancellor’s latest announcement of £4.6billion to be spent on new grants to support businesses – with retail, hospitality and leisure receiving a one-off grant worth up to £9,000.
It is understandable that short-term survival planning might be high up on your business agenda. Yet, a critical part of any financial planning is developing a plan for cash management as part of your overall business risk and continuity strategy.
“Given the importance of cash flow in times like this, companies should immediately develop a treasury plan for cash management as part of their overall business risk and continuity plans… the approaches you take to manage cash will have implications for not only your business but also for your customers.”
Deloitte: ‘Managing cash flow during a period of crisis’ 
There are some key areas of cash management that require urgent consideration in order to mitigate risks and plan effective cash management. These include:
Debtors are a hidden source of capital
Debtors can be a significant asset on the balance sheet and a hidden source of capital. You might want to analyse your customer bases to assess the financial risk of key trading partners, customers and suppliers.
Establish control over debtors and instigate longer payment terms and make a re-assessment of finance options, as not all options will continue to be available. Additionally, you can positively affect your cash position by selling or financing your debtor book or improving your supplier management.
Improve your cash-to-cash conversion cycle
Due to the current conditions, it can be preferential to move your attention from P&L to Balance Sheet to look at payables, receivables and inventory. You might consider variable costs in order to immediately reduce cash outflows, from hiring freezes to discretionary spend – such as training.
Find your cash balance
What’s vital for effective cash management is to find your perfect balance between saving, generating and spending cash. We know that might be a hard balance to determine due to the unpredictability of consumer confidence. For instance, how to price goods or services to encourage demand, while also covering increased running costs associated with the pandemic. But it is this kind of careful cash balancing, along with analysis of capital expenditure, and running multiple scenarios, that will enable and empower your business to prepare for all kinds of change.
Furthermore, as every industry is different and faces a vast array of challenges, it is critical to match pressures with specific solutions.
For example, the manufacturing industry has historically been a high-volume business with relatively low profit margins. Therefore, manufacturers need to effectively manage inventory and control cash balances and flows, in accordance with plans and changing circumstances and to account for long lead and shipment times for raw materials and components.
In retail, stock ties up cash so it’s a priority to mitigate cash flow issues – from monitoring online sales channels to the implications of returns on revenue.
Within professional services – as time is often the inventory of a service-led business – a more agile and reliable system that logs billable hours in remote working situations protects revenue.
And in hospitality, a hotel’s income statement is its critical tool, with major business decisions based on the results. So, timely financial reporting processes need to be in place in order for hotel operations teams to make adjustments to improve results for the given time period, preventing the same potential costs or inefficiencies from being repeated.
By gaining a better understanding of the impacts and changes that will affect your specific industry, businesses can better re-imagine and re-align how to plan operations and growth going forward, developing new forecasts and strategies around cash management. It’s also why Axiom financial performance management solutions are targeted to improve financial management efficiencies and forecasting within specific sectors and businesses.
Axiom software enables you to maintain total control over finances by modelling different financial plans and initiatives. Applications are developed for your individual sector’s cash management, including modules such as Budgeting and Forecasting and Capital Planning and Tracking.
Our new guide ‘Fit for the Now’ also focusses on helping you through the range of challenges and pressures you currently face. We take a look at how you can approach cash management in times of uncertainty, while also developing new opportunities to stay ahead of the competition for long-term financial success.
Axiom’s guide, ‘Fit for the Now: Adapting to challenging times and economic uncertainty’, explores:
If you’d like to find out more about how you can empower your decision-makers with improved cash management and agile financial planning in these uncertain times, download a free copy of the guide here.