In today’s connected world, unexpected global events bring new challenges to pretty much every type of business. One of the trickiest pressures is unpredictable impacts to cash flow that create uncertainty around money.
In this article, we share some tips to help you navigate that uncertainty and show how knowing more about your business finances is your best shot at maintaining success.
We cover the following:
The right mindset for uncertain times
Many businesses use what’s happened in the past to get an idea of what’s likely to happen in the future. This includes looking at historical trends and data to predict sales spikes, or how particular seasons affect supply chains.
But change is inevitable, and these reliable patterns can be disrupted by things outside of your control, such as shifts in your industry, unexpected customer behaviour, and new government legislation.
So, what can you do to keep your business financially healthy when this happens?
Instead of looking at the past to predict what will happen, use it to inform your decisions.
By focusing on what you can know—such as how your business has previously performed at different times—you can take better control of your finances and act with more positivity and confidence.
How to know more about your money
Getting visibility of your finances gives you a stronger understanding of how well your business is performing.
More specifically, you need to dig into your cash flow, and see how past events have influenced how much money is available at any given time.
This is important even in a predictable landscape, but during something like a recession, it becomes essential.
Cash can be tight at times like this, but you still need it for the likes of paying expenses, bank loans and taxes, as well as buying assets such as stock and materials.
Without knowing exactly how much money is available, it’s hard to feel in control.
It also helps to have a better understanding of the forces behind your cash flow. For example, which customers spend the most, how frequently they buy, and how long they usually take to pay all reveal why your cash flow has been high or low in the past.
When running a business, you probably won’t have the time to become an accountant just to know more about your money.
Fortunately, you don’t need to.
Plenty of accounting software solutions include easy-to-use features that give you real-time financial insights, whether that’s at a glance or in more detail.
To fight uncertainty as much as possible, you need both views:
Top-level view
- See income and expenses instantly.
- Spot trends.
- Flag anomalies (such as outstanding debtors or missed payments).
- Highlight top customers.
- Understand current period VAT liability.
Detail view
- See individual transactions that make up top-level insights.
- Build, customise, and run financial reports.
- Create analysis types for reporting.
- Make specific forecast adjustments.
- Compare performance between current and previous periods.
Top-level insights such as sales and purchase totals, trends, and anomalies help you stay agile at times where your decision making needs to be fast yet informed.
This happens more during times of uncertainty, especially following a sudden development such as a supply chain delay or inflation spike.
But there are also times where you need a more deep and specific understanding of your financial position.
If you’re trying to make a big decision with long-term impacts, you’ll need to use data to inform which direction is best to take.
Whether it’s trying to see if you have the cash availability for a particular investment or analyse which areas of your expenditure could be reduced, having data presented in a digestible way will help you make decisions with confidence.
With both these levels of understanding on your side, you’ll have started to build a solid base of knowledge to keep you grounded when things get choppy and help you handle any sudden market shifts.
Can you forecast during times of uncertainty?
In more consistent times, these cash flow insights are great for forecasting, and they can still serve this purpose during uncertainty too.
Just remember, accuracy may not be perfect if you’re basing projections on historic periods that are significantly different to the one you’re currently facing.
So, if it’s a recession, look back at the last one if you can, rather than comparing it to the pandemic.
5 tips for building a knowledge foundation
Preparation is key in being able to respond when things suddenly change. You’ll need to respond quickly, so it’s best to keep learning and rely less on that gut feeling for big decisions.
Here are five tips that’ll help you be as ready as you can:
1. Check finances regularly
You’re probably doing this already, but it’s even more important during uncertain times.
Closely monitor your financial health at regular intervals, so when you need to make a decision, you’ll know which actions are commercially viable.
2. Make corrections quickly
If you spot any financial anomalies, take action quickly to fix them.
In times of uncertainty, what may usually be a manageable challenge (such as a spike in unpaid sales invoices) can quickly stack on top of others when something else unexpected happens (a quick rise in energy costs, for example).
Solve issues early to prevent this from happening.
3. Pay attention to patterns and trends
You can learn a lot about your core business activities when you view their financial impact over time.
In turbulent times, consider whether your current month is as you’d normally expect it to be, or if you’re on some sort of trajectory.
This will help you plan around challenges as they come up.
4. Still keep up with the world
Though you’re mainly focusing on knowing your business finances, you should still keep up with the world. Continue to use whatever channels you normally do to access the latest developments in your industry and market.
This way, you won’t miss anything big that could have an impact further down the line.
5. Expect hits and misses
If you make a decision and things don’t go to plan, remember to cut yourself some slack. It’s inevitable that you’ll have hits and misses when there are so many unpredictable factors outside of your control.
Just stay positive, learn from it, and keep making moves based on insights whenever you can.
Final thoughts
When you run your own business, having to deal with some uncertainty around money is unavoidable. But the fact that you’re an entrepreneur means you’ve dealt with this already.
The past few years have thrown everything at business owners, and though it may seem there is no such thing as normal anymore, having the right mindset can make all the difference.
Focus less on invisible forces that you can’t do much about and be extra vigilant when it comes to seeing and knowing your own business finances.
This reduces uncertainty and, at the very minimum, gets you as ready as you can realistically be.
With a solid foundation built on numbers, you’ll adapt to the unforeseen and look back on a period of uncertainty as one that helped shape your business.