I’ve previously talked about all the ways your cash flow can get side swiped during a recessionary period and how you need to protect yourself from these unplanned events .
Here are some strategies to consider to make sure your cash flow and company aren’t left for dead. Remember that those who can get through a recessionary period relatively unscathed are in a great position to profit out the other side due to the fact that there’s going to be business to be picked up from the fallen.
Strategy #1. Plan for a slow down by making as many of your operating costs variable and consider utilizing more contracting to further reduce your fixed overhead. This may tax your operations a bit, but if cash flow becomes tight, you’ll have your monthly outflows minimized.
Strategy #2. Make sure to spread your supplier business around and potentially take on additional suppliers even if it increases your costs a bit. You never know when a supplier is going to go down due to their own credit problems and if you are relying on their trade credit terms for your cash flow, then you could very well get pulled into the soup as well if you’ve got too much dependence with any one source.
And just because suppliers are big doesn’t make them immune to cash flow problems during a recession. In fact they may be even more vulnerable if their balance sheet is highly leveraged and they have a few large customers that provide for most of their revenues.
Strategy #3. Do not enter into longer term projects or entertain deals with new partners. In some industries, like construction, many sub trades just go on vacation and shut down business all together because their experience tells them its only a matter of time before someone chooses not to pay the little guy when money gets tight. More smaller jobs with faster turnover reduce the risk of too much cash being tied up in any one venture.
I’ll be back with a few more suggestions in tomorrows post.