Tips for Managing Economic Uncertainty

After managing $600M in cash flows for over 75 clients, I’ve realized most SMBs make the SAME 7 mistakes. Here they are (so you can avoid them): 1. 𝗭𝗲𝗿𝗼 𝗗𝗮𝘁𝗮-𝗗𝗿𝗶𝘃𝗲𝗻 𝗗𝗲𝗰𝗶𝘀𝗶𝗼𝗻 𝗠𝗮𝗸𝗶𝗻𝗴 Reliable bookkeeping and KPI tracking gives you something invaluable: Data about your business. But you have to put it to work: • Setup weekly/monthly reviews • Track statements, KPIs, variance etc. • Course correct based on what you find Once you have data, learn to read and analyze it. Use it to improve your decision making. 2. 𝗡𝗼 𝗕𝗼𝗼𝗸𝗸𝗲𝗲𝗽𝗶𝗻𝗴 Most small businesses either don’t have a bookkeeper or try to do it themselves. Neither option works. So hire a bookkeeper already! You can’t do anything if you do not know your "real" numbers. 3. 𝗡𝗲𝘃𝗲𝗿 𝗧𝗿𝗮𝗰𝗸𝗶𝗻𝗴 (𝗖𝗮𝘀𝗵) 𝗞𝗣𝗜𝘀 Poor cash flow management is the #1 reason most businesses fail. Which is ridiculous because you don’t need to be a finance genius to do this. You can simply start by tracking these 7 Cash KPIs: • Overdue ratio • Cash reserves • Free cash flow • Cash burn rate • Operating cash flows • Days of sales outstanding • Days of payables outstanding Track weekly, fortnightly, or monthly. The key is to get started. 4. 𝗨𝗻𝘀𝘁𝗮𝗯𝗹𝗲 𝗚𝗿𝗼𝘀𝘀 𝗠𝗮𝗿𝗴𝗶𝗻𝘀 Stable gross margins are the foundation of stable cash flows. While unstable margins are a sign of a breakage in your business model. The first step is to understand where you stand: • Calculate your gross margins • Review the trend for the past 6-12 months • Identify the pattern and deviations - then work on minimizing them Healthy margins are the secret to surviving business "mistakes". 5. 𝗡𝗼 𝗘𝗺𝗲𝗿𝗴𝗲𝗻𝗰𝘆 𝗙𝘂𝗻𝗱 The issue with most businesses isn’t cash flow, it's real-time cash availability. Why? Because they don’t keep enough cash on hand. So they’re surprised in case of an emergency: • A lawsuit • An Act of God • Unexpected attrition Keep 3-6 months of expenses in cash. 6. 𝗨𝗻𝗽𝗿𝗼𝗳𝗶𝘁𝗮𝗯𝗹𝗲 𝗨𝗻𝗶𝘁 𝗘𝗰𝗼𝗻𝗼𝗺𝗶𝗰𝘀 Not every business has high margins, and that’s okay. But it's not okay to have unreliable unit economics. Without sustainable unit economics, you'll only scale your business to bankruptcy. 7. 𝗡𝗼𝘁 𝗧𝗲𝘀𝘁𝗶𝗻𝗴 𝗣𝗿𝗶𝗰𝗶𝗻𝗴 Testing your pricing is the lowest-hanging fruit. Still, most SMB owners price their products arbitrarily. Here's a general guide: • Try charging more • Try different offers & price points • Try bundling services & products Test till it hurts. Thanks for reading! More small business owners need to be aware of these basic practices. Hope this quick post helped. If you liked it, please share and let me know what resonated most. Follow me for more!

34% of SMBs have only a month or less of cash reserves. How do we address this critical issue? Here are 10 essential cash management rules: 1. Understanding Cash Metrics: Focus on operating and free cash flow, not just profits. 2. Building Cash Reserves: Maintain enough cash to cover 3-6 months of payroll, slow months, and unexpected equipment costs. Be cautious in volatile industries. 3. Analyzing Beyond the Bank Balance: Use weekly financial reports instead of just checking the bank balance to better understand cash obligations. 4. Efficient Invoicing: Invoice immediately and manage accounts receivable proactively to ensure quicker payments. 5. Strategic Payment Scheduling: Don’t rush to pay bills; optimize payables for better cash flow and maintain good vendor communication. 6. Inventory Management: Treat inventory as an investment and balance stock levels to avoid cash tie-ups. 7. Growth and Cash Flow: Manage growth carefully by securing credit in advance and understanding the cash conversion cycle to prevent cash shortages. 8. Tax Planning: Treat taxes as a critical expense and work with a knowledgeable CPA to plan for tax implications. 9. Prudent Use of Debt: Use debt strategically to support growth and investment, and maintain diverse banking relationships. 10. Maintaining Flexibility: Develop a flexible business strategy that includes multiple suppliers and cross-trained staff. These strategies can help SMBs manage their cash flow more effectively and safeguard against financial crises. If you want to go deeper, I wrote about this in my newsletter. Please read and subscribe: https://lnkd.in/gP4KXvDU

Businesses die when they run out of money. There is one tool to survive a cash crisis. The 13-week Rolling Cash Flow Forecast 🧵: It is a simple spreadsheet. To forecast your cash precisely by the week. For 13 weeks -- a short enough time to be precise. And just enough time to get ahead of problems. Here’s the Excel template I’ve used (link at end): Step 1: Start with this week. Enter this Monday’s date. We have a column for this week and the next 12. Step 2: Income Fill in your current starting cash on hand. Then the cash coming in this week. Step 3: Expenses List the cash that’s going out from operations. Like rent, salaries, fees, or loan payments. Step 4: Ending cash position Each week, start with the cash on hand. Bring in some more cash. Spend some. Then see what's left for next week. We want our cash to stay above zero. No cash = no business! Steps 5 & 6: Accounts Receivables and Payables Receivable = money owed to us (suppliers) Payable = money we owe (vendors) These are often on terms (like net 30), so we want to forecast when they must be paid We enter current & new ones, and due dates That’s the basic idea. You update things for the next week and beyond. Revise each week and delete the first week. So it’s always up to date for the next 13 weeks. And you can now try to avoid running out of cash. Usually, you're here because your bank account is nearly empty! So now… Your job as CEO is to stretch your cash: •Delay payments •Renegotiate w/ vendors •Expand borrowing •Raise cash •Get paid early •Etc. Buying time to fix the problems that got you in this mess! I am using this spreadsheet format now. In real businesses. As the economy gets worse, more of us will need it. You can find the spreadsheet free on my site at: girdley dot com slash 13weeks

Contrary to what you might think, the most important thing about my cash flow forecast isn't accuracy. It's conservatism. As modelers, it's only natural to obsess over perfection. Accuracy. We want our models to be right because they're the playbook for the business. Sadly, no amount of XLOOKUPs or Dynamic Arrays can help us predict the future. The future, by its very nature, is uncertain. A better approach is to build in buffer. Downside. Uncertainty. You don't hear businesses talk much about unexpected cash windfalls. It's always the other way around: Shortfalls. A customer didn't pay on time. A project got pushed back. An expected bid went to a competitor. But, our costs (for the most part) are fixed. Those are due no matter what. So when you're building your cash model, I would propose building everything with a conservative assumption: - Collections come in later than expected - Expenses go out earlier than expected - All collections are given a [30%] haircut (you pick a number) - A "cushion" line for what else could go wrong (maybe another 10% of all activity) Because what's the true, actual goal here? To sleep at night. We create companies that hopefully generate enough margin to pay people for their work (and theoretically make a net profit too). So forecast everything conservatively. Then look at the big picture. The pain points. Build a plan for the downside. In the end, the true power of a conservative cash flow forecast lies in its ability to help us navigate uncertainties with confidence. By contemplating the unexpected, we're building a foundation for a resilient, sustainable business, and maybe (just maybe), getting a little sleep at night. 𝙏𝙝𝙞𝙨 𝙢𝙞𝙜𝙝𝙩 𝙝𝙚𝙡𝙥... Grab my "Doomsday Cash Runway Template" to help get you started → https://bit.ly/48TUsP8

𝐅𝐢𝐧𝐝𝐢𝐧𝐠 𝐢𝐭 𝐡𝐚𝐫𝐝 𝐭𝐨 𝐦𝐚𝐧𝐚𝐠𝐞 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐫𝐢𝐬𝐤 𝐟𝐨𝐫 𝐲𝐨𝐮𝐫 𝐒𝐌𝐄? As someone who's navigated the ups and downs of running and advising small and medium-sized enterprises (SMEs), I know that identifying and managing financial risks is crucial for your business's health and growth. Let's delve into some key strategies: Understand Your Cash Flow: Keep a close eye on your cash flow. Surprisingly, 82% of SME failures are due to poor cash flow management. Regular Financial Audits: Conducting regular audits can help identify potential risks early. Remember, prevention is better than cure. Diversify Revenue Streams: Don't put all your eggs in one basket. Diversification can reduce dependency on a single source of income, which is vital as market trends shift. Stay Informed on Market Trends: Keeping up with market trends is essential. This knowledge can help you anticipate and prepare for potential financial downturns. Invest in Good Insurance: Insurance can be a lifesaver in mitigating unforeseen risks. Consider different types of insurance to cover various aspects of your business. Create a Risk Management Plan: Have a solid plan in place. Only 50% of SMEs have a risk management plan, yet those who do are 28% more likely to experience growth. As we navigate the ever-changing business landscape, remember that managing financial risk is not just about avoiding pitfalls; it's about empowering your business to thrive in uncertainty. Looking forward to your insights and strategies on this! ________________________________ Check out my website and podcast. Link in the comments. #FinancialRiskManagement #SMEGrowth #Facts #BusinessStrategies #EconomicResilience #Entrepreneurship

One thing I'm seeing with my clients......everyone is struggling with marketing. Costs are generally high. No one knows what the next big thing is. And market stability feels elusive. Which means you are stressing out thinking about how you are going to get to the revenue numbers of 2021 and 2022. You're worried about being able to cover your bills for the month. You probably are worried about being able to pay employees etc. How can businesses find ways to promote themselves effectively without overspending? Cash forecasting. It gives you a clear view of your financial runway and resilience. Here's how to do it: 1. Start with Sales: Project your sales volume for each product/SKU over the forecast period (weekly, monthly, or quarterly). Consider historical data, seasonality, promotions, and new product launches. 2. Price it Out: Establish accurate pricing for each product/ channel. Factor in any discounts, promotions, or wholesaler/retailer markups. 3. Understand Your Collections: Determine your typical time lag between sales and customer payments. Factor in payment terms (e.g., Net 30, Net 60) and potential collection delays. 4. Detail Your Expenses: Include all operational expenses: cost of goods sold, marketing, payroll, rent, shipping, etc. Categorize expenses as fixed (recurring) or variable (tied to sales volume). 5. Analyze Funding Needs: Project any funding rounds, loans, or other cash infusions. Assess timing and amounts of funds expected. This ensures you have extra cash in the bank when things get dicey in the market and customers aren't buying. How are you approaching marketing in these uncertain times?

Want to know the perfect rollercoaster for an entrepreneur?   Peaks of profit + valleys of debt = The Raging Bull 🎢   Months where you’re overflowing with cash followed by months with huge influxes of expenses.   It’s an endless cycle of chaos but it CAN be managed effectively.   It just takes some strategy and a bit of proactive action. 💪 As a fractional CFO, here are 5 strategies I recommend entrepreneurs take to help manage cash flow. 1️⃣ Aim to have a buffer of cash on hand that covers 3-6 months of expenses. Pro-Tip: Utilize another account (a secondary savings/checking account) to stash your cash away so you never see it. “Set it and forget it.” 2️⃣ Review your accounts receivables balance monthly. The longer your receivables balance grows, the harder it will be to chase customers who haven’t paid you. "Top of sight, top of mind." Pro-Tip: Offer incentives for early payment or negotiate longer payment terms. 3️⃣ Use your current forecast as a base to create your cash flow forecast. Pro-Tip: Showing monthly gating gives visibility and helps prepare for which months have extreme changes so you can plan accordingly. Bonus 💥 : By using an existing forecast, you aren’t recreating something from scratch! 4️⃣ Review current operational expenses monthly Beware of expenses that are automatically charged to your card. You likely have monthly subscriptions that you are not actively using - turn those suckers off or cancel them! Watch Out 🛑 : Low visibility can cause hidden expenses to secretly drain your cash. 5️⃣ Analyze profit margins monthly Maintaining healthy margins helps protect from unexpected changes in expenses. Watch Out 🛑 : If profit margins are razor thin, it means ANY unexpected expense can cause a cash flow crisis. Try to bump up those margins to help protect yourself if you enter a valley. -------- Hi, I’m Lisa and I help small business owners achieve financial stability and growth. If you like this post, click the 🔔 to follow for more content like this.

"Treat your company like you're 30 days from bankruptcy, and everything will be fine."  This advice was handed down to me when I had just started my business. I was too young to understand what it meant. So without thinking much I just kept this quote in the back of my mind and followed this rule. This shaped how I handle money in business and life: → Grow based on data, not emotions → Save reserves in case earnings drop → Check spending as if I were an employee   → Avoid lavish things that don't match reality This careful approach gives a safety net when times get rocky. It helps me remain steady if things get uncertain. It helps me take calculated risks without the fear of losing much. If you’re struggling to manage your finances, here are 3 things that you can follow. 1. Start tracking every expense → Use a budget spreadsheet to understand where the money goes.  → This awareness counts when funds are tight.  2. Build at least 3 months of reserve funds before expanding. → It gives a cushion if sales dip due to external events → This awareness counts when funds are tight.  3. Create a personal financial firewall. → Set boundaries on how much you can draw for personal finances. → It helps compartmentalize when inevitable problems arise. Money comes and goes but steady principles carry the day Build a strong financial foundation. Stick to this principle. You’ll be amazed by how well you manage your money. P.S. Do you have a financial rule for your business? If yes then what is it?

Don't forget these Cash flow forecasting tips: 1. Adopt a data-driven approach Leverage your actual cash flow data and build forecasts for greater accuracy and insights compared to relying on assumptions. Use revenue and AR/AP data to forecast cash inflows and outflows. Analyze past trends to predict future cash positions rather than starting from scratch each period. — 2. Automate data collection Automated data integration from your accounting and bank systems gets rid of manual collection and manipulation in spreadsheets. This saves significant time, reduces errors, and supports real-time forecast updates. Automation tools can pull invoice and payment data to update AR and AP forecasts daily. — 3. Use a 13-week forecasting period A 13-week cash flow forecast gives enough future visibility to assess liquidity risks and make strategic decisions. It's short enough to base projections on detailed data like payroll, orders, and payments. You can identify a potential cash shortage 3 months ahead and arrange financing. — 4. Build a rolling forecast A rolling 13-week forecast accounts for changing conditions better than static cycles. Each week drops the past week and adds the next week based on the latest data. This agility helps optimize cash deployment as your business fluctuates. — Note: Forecasting transforms cash flow from an afterthought to a strategic lever that optimizes operations and fuels sustainable growth. Make forecasting a priority. P.S. I'm Julio Martínez, founder of Abacum. Follow me for daily FP&A, CFO, and founder insights.

Some unexpected events can throw finances into disorder - a job loss, medical emergency, home or car repair, etc. And wihout warning, any expense can blindside your budget, leaving you scrambling to cover costs. But with some practical preparation, you can pivot more smoothly when the unexpected arises. The key is financial preparedness. It means having a financial cushion and plan that enables you to handle surprises without desperation. Here are 5 straightforward steps to shore up your finances for uncertainty: 1. Review your budget regularly and align spending with your values and savings goals. Account for building emergency savings and plan for irregular expenses. 2. Actively manage debt by avoiding high-interest accounts and paying down debts. Less debt equals greater adaptability during difficult periods. 3. Educate yourself on personal finance basics and plan for major future expenses like college savings or retirement. Foresight and knowledge build resilience. 4. Diversify income streams with passive income opportunities, side jobs, and long-term investments. Multiple revenue sources allow for flexibility if one drops off. 5. Secure key insurance for health, life, property, and disability. Insurance protects you when substantial unforeseen costs hit. Your financial readiness will help you roll with the changes when life throws curveballs. Follow these steps to prepare and face surprises with poise.