Cashflow Ideas for Troubled Times

Some of the greatest businesses started in the toughest of times1 (e.g., Microsoft, Apple, Disney, FedEx, GE etc). I imagine it shows that starting with little cashflow can set up good spending practices and innovative thinking around leveraging time and assets upfront.

Remembering that cashflow is king, a profitable business can still go bankrupt when its cashflow management is poor. The old story of ‘80% of businesses fail in the first 5 years’ although not likely accurate in all countries as rule of thumb. According to Bloomberg2, only 2 entrepreneurs out of every 10 make it past the first 18 months.

Certainly good business acumen, experience and having a client desired product or service are important, but you have to also look towards smart back-end business operations. This extends to how we focus on financial security, spending and safety nets to get us over the difficult times.

When the business is going well (or has the funding in place) that is the time to really focus on establishing the risk strategy of getting key safeguards like a bank overdraft in place and setting up the right level of bank accounts or financial structure to manage capex (capital expenditure), opex (operational expenditure), tax and other obligations (e.g., payroll tax, leave loading, superannuation contributions etc) and discrepancy funding. The banks are more open to establishing these risk treatments when the going is good, not when you are struggling and need it.

This includes the ‘liquidity’ of assets, meaning how easy it is to turn assets into cash, such as comparing the high liquidity of selling a share compared to a property.

Strategies have to also consider control. For example, a capital injection from loans allows the owners to stay in control, however getting capital injections from new shareholders deplete your shareholdings. When the company has low value, the shares are typically cheaper, and then the company accelerates and so do those shareholdings. This means that the value at a low point of the business due to cashflow issues causes people to do desperate things and discounts the actual value potential of those shares.

When times are tough, you can generally look towards opportunities around ownership, property, finances (i.e., loans, refinancing or financial structuring), staffing, assets and the actual products and services.

I believe it is better to focus on growth than to turn the focus on cost-cutting, however the actual answer is usually somewhere in between. It is suggested to keep the focus on growth, whilst being smart about leveraging current systems and infrastructure, getting more value from your people by empowering the team, and using money more wisely.

As insight for each of these areas you may want to consider this short list of examples and ideas:

Ownership

• Sell the business completely;
• Sell shares to a new silent partner (a person who is non-working in the business and acting solely as an investor);
• Sell shares to a new working partner (a person who will also work in the business);
• Sell shares to staff;
• Implement share options for staff; or
• Take the company public (switching private investment to public investment).

Property

• Downsize to a smaller and less expense office space;
• Rent instead of own;
• Sub-lease out unused property space;
• Share the premises;
• Renegotiate the property lease to pay less;
• Sell the property to convert to a lease (you could even remain as a tenant); or
• Go into a rental property lease with contract option (and intent) to buy.

Finances

• Seek capital injection (silent or working investor);
• Get a bank overdraft;
• Get a bridging or short-term loan;
• Extend credit card limits (take caution on this one);
• Make a call on unpaid shares;
• Exercise share options;
• Renegotiate loan interest;
• Change loans to interest only;
• Delay payments to maximum allowable terms;
• Follow up debtors earlier;
• Reduce payment term periods;
• Seek Prepayments;
• Get Pre-Order Payments upfront;
• Reduce payment terms for clients;
• Payout loans to avoid ongoing interest charges;
• Consolidate loans to achieve a better rate;
• Look at operations for cost savings;
• Spend smarter (e.g., one delivery pick up than multiple per product); or
• Convert equity in home to an offset account to lend against.

Staffing

• Be clear on vision to enable toward motivation (aligned effort to a defined strategy);
• Run brainstorming sessions to capture new ideas and gain buy-in;
• Bring in a new partner for promise of profit share or equity (known as sweat equity);
• Empower the team members, as when one is feeling valued they tend to step up;
• Leverage Strategic Alliances and Joint Ventures;
• Reduce staff numbers;
• Modify staff hours of work (fulltime to part-time);
• Reduce hours of casual staff;
• Renegotiate payments (where possible to do so); or
• Merge duties in to fewer roles.

Assets

• Sell an asset;
• Lease out an asset;
• Short term hire out an asset;
• Jointly buy and share the use of an asset;
• Sell an unused domain name; or
• Convert strategy to lease instead of buy (e.g., vehicles).

Products and Services

• Create options of choice with differing pricing range;
• Decrease prices (be wary of this one);
• Promote a sales campaign (awareness);
• Package products / services to sell together;
• Use retainer models;
• Have a strategy to up-sell products when customer orders;
• Offer discounts (be wary of this one);
• Offer scholarships or other partnering-based relationship models; or
• Offload old stock, called dumping.

I would suggest to use this list as a simple checklist and then brain storm with your team other ideas and options. The old saying two heads are better than one, well behavioural sciences show that it is not what another person may suggest, it is the stretch in your own thinking that it influences that alows us to come up with new and innovative ideas and solutions.

Good luck on building that sustainable business.

 About the Author - Todd Hutchison

Todd Hutchison is an international bestselling business author, a Nationally-accredited trainer and certified speaking professional (CSP), and a global strategist, project management and behavioural specialist. He is listed in the Who’s Who of Business in Australia. 

Todd is the Global Chairman and CEO of Peopleistic (including the Business Education Institute and Film My Video businesses), an executive with law firm Balfour Meagher and resides as the Chairman of the International Institute of Legal Project Management, as well as being a Board Director of Leadership Western Australia.

Todd is also a qualified company director, having served on boards in Australia, the United Kingdom and the United States, and has led international businesses. He has worked in over 160 organisations in 13 countries, including global corporations like AT&T, Microsoft, Coca-Cola, Deloitte, Sime Darby, Genting, Schenk Process, JP Kenny and Honeywell.

He holds adjunct positions with Edith Cowan University and Curtin University, and teaches international business as part of the MBA academic staff at the Australian Institute of Management.

Todd’s qualifications include an MBA and a Master of Commerce and he is now progressing a PhD.

References

1  Refer to https://articles.bplans.com/30-big-companies-that-started-in-hard-times/

2 Refer https://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/#2b4cd4b56978