The cash flow gap-trap
As the recession lifts, companies may well find products and services are back in fashion again. So it’s goodbye recession then!
But wait, there’s another problem – based on past performance, more companies go bust as the recovery takes off, than during the actual recession
Confused? Well here’s the logic that backs up the statistic. Hard pressed businesses which have struggled their way through the past two and a half years, now find that they are sapped of cash reserves. Suddenly business looks up; enquiries start re-emerging, and orders follow. Now to produce the goods, stock has to be bought, extra wages need to be paid, and then there’s the wait until payment is received. It is that final waiting period for payment which is the cash flow gap-trap.
Avoiding the gap-trap
There are a number of basic solutions which can be followed to avoid the trap:
- Borrow more money or increase your facilities with the bank
- Factor your debtor’s file to get paid faster and bridge the gap
- Get a tighter hold on your cash flow. Don’t pay your suppliers until the terms state that you must and be energetic about your debt collection
- Don’t over-trade. During the recession your company may have become accustomed to trying to grab every piece of work available, even though the margins might have resulted in very little profitability. Now, in better times, rather than allowing your turnover to grow too quickly, you might decide to concentrate on your margins, thereby turning over the same amount, but making more profit.
Build your “bridges” now to cross the cash flow gap-trap
OK, but back to today. This may look like the last thing you need to worry about right now. After all, you are possibly still feeling the weight of a harsh recession on your shoulders, and talk of improvements in your personal or business economic world may seem dramatically far sighted.
Stop and plan ahead now, after all, the upturn has already started, and what could be more ironic than surviving the longest hard recession only to fail at the recovery.