The business landscape has changed dramatically—and sometimes unpredictably—over the past few years. While there is no crystal ball for the future, some trends have emerged that look to stick with us for the foreseeable future. These include a desire for a more robust, protected supply chain, higher interest rates compared to the past few years and rising expenses.
All of these have an impact on cash flow for businesses and should be considered for both short and long-term planning. While changing business practices can be a challenge, your banking business advisor can help reset your cash flow in a way that works.
Talk to your bank sooner than later if you need cash flow help
Contrary to what some business owners think, one of the first calls you should make when confronting cash flow issues is to your banker. There is a serious upside to getting those conversations started sooner than later: Banks can help proactively restructure debt so that it accommodates a business’s projected cash cycle, and give owners an opportunity to make changes to their cash flow from a stronger position. Waiting until you are in a pinch makes it harder to shift resources or renegotiate terms. Early action will give you more options and flexibility in terms of what you can do.
Get back to basics with budgeting
During years of very low-interest rates, some businesses got out of the habit of budgeting and making projections—often there was access to cash to bridge a shortfall. As expense costs have risen and lending has tightened, now is a good time to get back in the practice of more closely budgeting your cash flow cycle and updating numbers to most accurately reflect how long it takes to get inventory, turn it over, receive payment for finished goods or services delivered and so on.
Factor in supply chain factors that may be here to stay
Few parts of the cash flow cycle have been more disrupted over the last few years than the supply chain. Businesses have had to wait longer—or even cease production—due to gaps in the availability of parts and materials. Many businesses now opt to hold larger amounts of inventory to compensate. What was “just in time” is now “just in case.” Shipping times are less predictable and shipping costs have fluctuated with energy costs. All of these affect cash flow, and to the extent that they are the “new normal,” cash flow needs to reflect that reality.
Optimize government programs designed for your industry, if applicable
A number of government programs have been established or expanded to help businesses, especially small businesses, get through financial tight spots. Whether in the form of employee retention credits or loans or credits from the U.S. Small Business Administration or the U.S. Department of Agriculture (depending on the business), a business banking advisor may be able to help an owner find a program that fits.
Consider how banking tech and financial strategies can help you improve cash flow
Not all changes of the last few years are negative. Businesses and consumers have fully embraced digital transactions, which are more certain and can mean faster payments than previously expected. Upgraded financial management software can keep a closer eye on cash flow. Debt swaps can help manage interest rate risk. And rising interest rates may improve returns on certain short-term investments businesses may hold, such as laddering treasuries. Talk to your bank about how to take advantage of these solutions.
For business owners and managers, cash flow issues can seem daunting, especially if they are squeezed by larger suppliers, customers or creditors. Alerus has experience helping navigate these challenges and can offer advice and help make connections that may enable a business to emerge in a stronger position than before. Talk to an Alerus business advisor for cash flow management guidance that matches your unique situation and goals.