As I’ve previously written that while the out look reports for the current recession are improving, the after effects are only starting to surface in many cases.
A recession impacts the money supply and the flow of cash through the economy.
When one area of the economy becomes cash flow constrained, the impact will slowly ripple through the rest of the economy through the related connection points.
On more of a micro level, this has the potential to impact businesses of all sizes from several different directions.
First, the business could have its commercial credit reduced by its lender or pulled completely if the lender goes out of business, which they are in record numbers.
Second, the business may not be able to access new credit for upgrades or growth, impacting its ability to perform.
Third, sales may be down to the point that fixed costs are not being covered off and cash flow injections are required.
Fourth, customers may become slow to pay or default payment.
Fifth, vendors may cut back on credit or reduce their own product line of goods the business requires.
All these and other scenarios can create negative impacts to the cash flow.
The most damaging aspect to these ripple effects is that you may not see them coming until its too late to do anything about it, or at the very least, leave you scrambling to address the problem. When you’re hit with multiple issues from different directions, the impact can be exponential in nature.
This is where proactive cash flow management has become critical in the current business environment.
As a business owner, the goal is to reduce risk where ever possible to assure the long term profitable survival of the business. Proactive cash flow management has now gone beyond accurate forward projections on inflows and outflows and now must include greater diligence into what could potentially happen to the business and how to mitigate the potential unforeseen risks.
And cash flow protection is likely going to cost additional money, but the alternative of not being proactive can cost substantially more.
Examples of more proactive measures could include:
Most business owners are too busy with their businesses to believe they need or have time for any of these activities. The assumption is that if they get in some sort of cash flow bind, they can borrow their way out of it.
The reality is that business financing for distressed cash flow is a hard ticket to come by these days and some of the forms it comes in if you can find it are very pricey.
The recession is far from over. Financial markets are basically in disarray and have become completely unpredictable.
Whether you get hit by the storm or not isn’t the issue.
Whether you can survive a hit or multiple hits is.