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Last updated on 2024年7月8日

You're struggling with cash flow in a recession. How do you decide which expenses to cut first?

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Navigating a recession can be daunting, especially when cash flow is tight. It's crucial to make informed decisions about your expenses to stay afloat. You may already be feeling the pinch, but with strategic cuts and a keen eye on your financial health, you can weather the storm. In this article, you'll learn how to prioritize your expenses and make the tough decisions that could save your business during economic downturns.

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1 Assess Needs

Begin by categorizing your expenses into 'needs' and 'wants'. Needs are essential for operation, such as rent, utilities, and payroll. Wants are nice to have but not critical, like office snacks or a premium software subscription. Scrutinize every expense and ask yourself if it's vital for maintaining your core business functions. This can be a revealing exercise, as it forces you to consider what's truly necessary and what's not, potentially unearthing areas where you can trim the fat without crippling your operations.

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Kha L.

Payroll & Fiscal Specialist
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No one likes recession because this economic term indicates high unemployment, a stagnant economy, and financial instability. During a recession, the best practice to secure your finance is to cut non-crucial expenses. Each individual may have different opinions about what "crucial" mean for them. However, as a rule of thumb, non-crucial expenses will not affect your basic needs in life such as food, shelter, and health. First, to illustrate, instead of eating out, cooking your own food can benefit for both your budget and body health in general. Second, considering to move into a smaller house or apartment to save on mortgage or rent. Last, avoiding unnecessary spendings that not provide any benefits for your mental and physical health.

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Krishna Khandelwal

Investment Consultant and Adviser regarding Indian Listed Stocks at Panch Tattva Wisdom
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In times of recession one has to cut expenses and aim at surviving. This shouldn't mean that companies core strength is made to suffer. This is a time when one may decide not to replace the retiring employees but to let the others to take charge of what the returing one was doing. Replacement of old equipment and tools may be postponed fir a while. Travelling etc may be cut short etc.

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Lucas Borlinque

Coordenador de Controladoria | Especialista em Gest?o de Custos e Planejamento | Expertise em Implementa??o de Sistemas e Análise de Desempenho | Proativo na Melhoria de Processos e Eficiência Operacional
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Para uma gest?o financeira eficiente, categorizar suas despesas em "necessidades" e "desejos" é essencial. Necessidades: Essenciais: Incluem aluguel, servi?os públicos, salários e matérias-primas. S?o cruciais para manter as opera??es em funcionamento. A??o: Avalie a eficiência e busque renegociar contratos ou otimizar o uso de recursos. Desejos: Confortáveis, mas n?o essenciais: Exemplos s?o lanches de escritório, assinaturas de software premium e decora??es. A??o: Pergunte-se se s?o realmente necessários e considere redu??es que n?o afetem as opera??es principais. Conclus?o: Identificar e diferenciar esses custos permite cortar excessos e melhorar a saúde financeira sem comprometer a eficiência operacional.

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2 Analyze Costs

Next, perform a thorough analysis of your costs. Look at variable costs that fluctuate with sales, such as raw materials and shipping, and fixed costs that remain constant, like rent and salaries. Determine which costs are disproportionately high relative to the benefits they provide. Cost-benefit analysis is key here; if an expense isn't offering a return on investment or is not essential to generating revenue, it may be a candidate for reduction or elimination.

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Lucas Borlinque

Coordenador de Controladoria | Especialista em Gest?o de Custos e Planejamento | Expertise em Implementa??o de Sistemas e Análise de Desempenho | Proativo na Melhoria de Processos e Eficiência Operacional
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Análise de Custos: Essencial para Eficiência e Crescimento Custos Variáveis: Flutuam com a produ??o e vendas (ex.: matérias-primas, frete). Avalie fornecedores e processos para reduzir despesas. Custos Fixos: Permanecem estáveis (ex.: aluguel, salários). Revise contratos e otimize estruturas para maior eficiência. Análise Custo-Benefício: Identifique gastos que n?o trazem retorno significativo. Elimine ou reduza despesas n?o essenciais para a opera??o. Conclus?o: A análise de custos permite eliminar excessos, melhorar a eficiência e fortalecer a saúde financeira da empresa.

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3 Cash Reserves

In times of recession, preserving cash reserves is critical. Evaluate your savings and emergency funds; these reserves can keep you afloat when revenue dips. Consider cutting expenses that are not immediately contributing to cash flow. For example, postponing a planned equipment upgrade could preserve cash for more pressing needs. Always think about maintaining a buffer that can cover at least a few months of operating expenses.

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Lucas Borlinque

Coordenador de Controladoria | Especialista em Gest?o de Custos e Planejamento | Expertise em Implementa??o de Sistemas e Análise de Desempenho | Proativo na Melhoria de Processos e Eficiência Operacional
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Reservas de Caixa em Tempos de Recess?o Avalia??o de Reservas: Revise suas poupan?as e fundos de emergência para garantir que podem cobrir despesas inesperadas. Redu??o de Despesas: Corte gastos que n?o s?o essenciais para o fluxo de caixa imediato, como atualiza??es de equipamentos. Manuten??o de Buffer: Mantenha um fundo que cubra alguns meses de despesas operacionais para garantir estabilidade financeira. Conclus?o: Proteger as reservas de caixa é fundamental para enfrentar períodos de baixa receita e garantir a continuidade das opera??es.

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4 Revenue Streams

Focus on protecting and enhancing your revenue streams. This might seem counterintuitive when discussing expense cuts, but it's about smart allocation of resources. If a particular service or product line isn't profitable or has seen a significant drop in demand, consider scaling back or discontinuing it. Channeling funds into your most profitable segments can improve overall cash flow and help sustain your business during tough times.

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5 Negotiate Terms

Don't overlook the power of negotiation. Speak with suppliers, creditors, and landlords to renegotiate payment terms or seek discounts. Longer payment terms can improve your immediate cash flow by delaying outflows without cutting the expense entirely. Discounts can reduce costs directly. Many businesses are facing similar challenges in a recession, so there's a good chance that your suppliers are willing to negotiate to maintain a good business relationship.

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6 Prioritize Growth

Finally, prioritize expenses that contribute to growth and sustainability. This includes marketing, research and development (R&D), and employee training. While it may be tempting to slash these areas first, they are critical for long-term success. Instead of outright cuts, look for more cost-effective strategies or scale back just enough to maintain momentum without stalling progress.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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You're struggling with cash flow in a recession. How do you decide which expenses to cut first?

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1 Assess Needs

2 Analyze Costs

3 Cash Reserves

4 Revenue Streams

5 Negotiate Terms

6 Prioritize Growth

7 Here’s what else to consider

Financial Management

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