11 January 2023

Finance Managers – Managing Cash Flow Challenges in 2023

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Do you want to take control of your cash flow in 2023? As a Finance Manager, you know how important it is to always stay on top of the budget and avoid cash flow problems but being able to manage cash flow can be a challenge when unexpected expenses arise, and revenues fluctuate from month-to-month. Cash flow challenges can affect your business’s growth and success, so it’s key for any Finance Manager to understand what these difficulties are and how best to address them. In this blog post, we will explore some common causes of cash flow challenges facing businesses today as well as provide tips on how you can overcome them while growing your company in the process!

As we look forward to the next few years, one of the biggest challenges businesses will face is managing cash flow. Over the past year, many businesses have had to rethink their financial strategies in order to survive- and cashflow has been the canary in the mine as to whether they will make it into 2023 or not. So, in 2023, those same strategies will be even more important as businesses continue to navigate this new economic reality.  Poor cash flow can seriously impact the performance and viability of a business so its important to manage it closely and proactively.

 

Profits are a dream, but cash is a reality

Too many organisations are focusing on EBIT, revenue growth, gross margin, and other financial statement elements from the balance sheet or income statement. However, smart Finance Managers do not overlook the importance of cashflow.

So how do you solve cash flow challenges?

Track Your Finances Closely

It’s important to keep a close eye on your finances and review them regularly. This will help you identify potential problems before they become too serious. Making sure that you always know exactly how much money should be coming in and going out of the business will help you spot any issues early and take steps to resolve them quickly.

Negotiate with Suppliers

If you’re struggling with cash flow, it may be worth contacting your suppliers and negotiating better payment terms or even discounts if you can pay upfront or in bulk. This could be a great way to reduce your overall costs without having to sacrifice quality of service. It’s also worth considering switching suppliers if your current ones aren’t willing to negotiate better payment terms for you. This may feel difficult with long established suppliers, but a company needs a healthy cash flow in order to thrive and so this must take priority.

Analyse Your Pricing Strategy

Get to the core of what your company does best, something that no one else offers, and then consider increasing your prices. You will undoubtedly lose some clients, but to really succeed in business, concentrate on those products or services with higher rate yields and ditch any that generate more losses than gains.

Invoice Promptly & Collect Payments Quickly

In order to improve cash flow, make sure that invoices are sent as soon as possible after an order is completed or service rendered so that payments can be collected quickly and efficiently. Follow up that unpaid invoice straight away, no matter how pleasant the client is!  Consider offering incentives for customers who pay on time such as discounts or loyalty points which could encourage them to pay faster than usual. Automating the invoicing process can also save time and ensure that invoices are sent promptly each month without having to manually send them out one by one via email or post.  Consider changing payment terms from 30 days down to 14.

Cash Flow Planning and Forecasting

The key to successful cash flow management lies in creating a comprehensive plan and cashflow forecasting system. Businesses should develop a detailed budget that considers all potential sources of income and expenses and they should also always have an up-to-date cash flow forecast. This can help provide clarity on how much money is coming in and going out each month, which can then be used to make informed decisions about how best to allocate resources. Cash Flow Management Software such as Clearview can help you keep track of your cashflow quickly and accurately on a month by month basis but weekly rolling cashflow forecasts are also key to see the next 12-13 weeks. These weekly forecasts should have more detail on incomings and outgoings and can identify problems which may be masked when looking at a month as a whole.

Businesses should create an accurate forecast of their future cash flows by considering factors such as customer demand, sales projections, and operating costs. A good forecasting system will also include measures for dealing with unexpected events such as supply chain disruptions or changes in consumer spending habits. Cash Flow Management Toolsare a fantastic way to have visibility of your cashflow at the click of a mouse. Constantly having an up-to-date cash flow statement provides confidence to you as a Finance Manager and your leadership team as to the health of the business.

Managing Debt

Managing debt is another important part of maintaining positive cash flow over the long term. Companies should aim to keep their debt-to-equity ratio low by regularly paying off debts and avoiding taking on too much credit at once. It’s also important to maintain a good relationship with creditors; they are often willing to renegotiate terms if they know that you are trying your best to pay back what you owe them on time. Finally, businesses should consider refinancing existing loans when possible; it’s often cheaper than taking out new loans with higher interest rates or fees attached.

Conclusion:

The role of the Finance Manager is to mitigate financial risk and communicate financial health to management team. Cash flow management is essential in order to succeed over the long term and with the economic downturn in 2023it will be a key focus for Finance Managers. With careful planning and forecasting and the help of finance forecast software, Finance Managers and CFOs can anticipate potential issues before they become major problems, allowing them to adjust their strategies accordingly. Additionally, managing debt effectively can help reduce costs and improve overall financial health over time. By following these tips, Finance Managers can ensure that their companies remain competitive well into 2023 and beyond!