At a fundamental level, companies need to have more cash coming into the business then cash going out. Cash flow, unlike profit, is a fluid concept regarding the movement of funds into and out of a business. During times of crisis or a downturn in the economy, more cash can end up going out than coming in, which can threaten the long-term survival of the business.
The purpose of cash flow management is to establish positive cash flow by using cash assets more strategically. One particularly effective cash flow management tactic is partnering with high-cash-flow businesses.
Business Failure Due to Poor Cash Flow
In 2020, many businesses are struggling during the COVID-19 crisis as the economy weakens. Clearly, businesses with strong cash flow are better suited to weather the storm.
It’s important to note that business failure due to cash flow is common even without the effects of unprecedented events like a pandemic. In fact, 82% of all businesses that go under do so for reasons related to poor cash flow. Businesses often fail to accurately estimate sales volumes and related expenditures, spend too much, become passive with unpaid invoices, fail to stick to a cash flow budget and don’t keep a buffer of cash on hand.
In the wake of the COVID-19, businesses are left waiting to see what happens next. However, with an economy that is slowing down and leaving many people unemployed, being reactive rather than proactive is not a good business strategy.
Understanding your cash flow statements including operating cash flow, investing cash flow and financial cash flow is essential for surviving during a time of economic uncertainty. Unfortunately, evaluating cash flow statements to anticipate the timing and amounts of revenue, and to minimize financial uncertainty, isn’t something all businesses do well.
For many companies, cash flow management is full of challenges including keeping accurate financial records, creating cash flow statements and piecing together a cohesive picture of cash position from multiple payable and receivable accounts. If your business is struggling to achieve positive cash flow during a recession, consider partnering with businesses with strong financial flexibility that you can leverage.
Business Partners with Strong Cash Flow
Most successful businesses have mutually beneficial partnerships with vendors, but it’s important that those relationships are with companies that are built to last. Characteristics of strong cash flow in vendors include high gross margins, low overhead expenses, clear sales growth projections, efficient payment and collection systems, and the right capital expenditures and debt structures.
A review of a potential partner’s cash flow statements should indicate that there is a positive cash flow from operating activities, a conservative use of finances and consistent investment activity.
Reevaluating Business Partnerships to Improve Cash Flow
During an economic downturn, it’s inevitably going to be harder to hit sales targets, but you don’t necessarily need sales growth to improve your cash flow. Instead, you can focus on setting benchmarks and implementing financial forecasting measures to become more effective in the way you use cash. Additionally, getting a better handle on spending can greatly improve cash flow.
Reevaluating your business partnerships during this time allows you to look for vendors with a more positive cash position, which can help you save money on your expenses. Forming the right partnership is a strategic maneuver that can make the difference between survival and failure of a business during a recession. Specifically, a partner with a strong cash flow helps you leverage existing resources to overcome gaps or inadequacies in your own company.
Improve Your Cash Flow by Partnering with a Financially Solid Logistics and Supply Chain Management Company
Companies that manufacture, remanufacture or sell wholesale or retail products should start considering their current logistics and supply chain management partnerships to look for ways to save money. Value-added services including just-in-time delivery, warehousing and distribution, kitting and packaging, assembly and sub-assembly services and warehouse fulfillment can reduce your expenses by enabling you to better control inventory, improve labor utilization and create a more cohesive and efficient supply chain.
If your operation involves products or services dependent on logistics and supply chain management, NewStream Enterprises, LLC can help save you money during this difficult economic stretch. Our organization maintains a stable cash flow because we have learned to master our budget, evaluate spending categories, create better financial plans, spot cash flow trends, monitor pending invoices and payouts, and most importantly, reduce expenses wherever possible.
Our team of employee owners is especially good at reducing expenses because of our use of a business operation system called open-book management that utilizes a fully engaged and educated workforce. We continually evaluate operational efficiencies to find more and better ways to save money. These expense-reducing measures ultimately benefit our partnerships, leaving companies like yours with an improved cash flow position during times of financial distress.