How to manage your cashflow in uncertain times

Cashflow is often considered to be the lifeblood of any business, not least because it can be the key to the success and sustainability of any growing recruitment business. For that reason alone, the importance of managing your cashflow well and forecasting for the months ahead should never be underestimated – particularly during times of uncertainty.

The rise in interest rates we are seeing across the financial market has continued to put pressure on commerce. Rising overheads, coupled with scarcity of labour and rising labour costs means recruitment firms are seeing clients challenging fees and as a result squeezing many agencies’ margins and adversely impacting their cashflow

The key to managing these pressures is looking ahead and forecasting for the months to come – being forewarned is being forearmed and allows you to take active measure now should you need to.

​​​​But what is cashflow management?

So, let’s go back to basics. In simple terms, cashflow is the measurement of the amount of cash that comes into and out of your business over a particular period of time. It’s important to remember that profit and cashflow are two completely different metrics. Profit is simply your revenue less overheads. They should therefore be considered separately.

A positive cashflow is a sign of having a healthy business and means you have more cash coming into your organisation than leaving it.  

On the flip side, a negative cashflow will put pressure on your business and you may find yourself in a position where paying your overheads and expenses becomes a struggle. If this scenario sounds familiar the key thing is not to panic and make rash decisions, there are steps to help you get back on track and support is available.

If you are facing difficulties or anticipate running into challenges to pay your financial commitments it is always wise to talk to your Bank sooner rather than later. They will then be able to talk through your options with you.

Take control of your cashflow

In periods of uncertainty it’s important to take the time to get on top of your finances and look at exactly what money is coming in and going out of the business and manage it accordingly.

As a starting point consider the following:

• Review your cost base - Have a look at every cost and ask yourself if it’s really necessary – prioritise what is essential and try to reduce what isn’t.
• Reduce your debtors – Make sure you have a solid process in place from the outset to ensure your clients pay you in full and on time, including credit checking clients before you start working for them and ensuring they have agreed to your terms of business. Where payments are overdue ensure you have a good credit control process in place.
• Take financial advice – Take advantage of the advice available. Talk to your lenders and find out if you still have the best finance deals available on the market. Your lender/bank will also be able to advise what options you may have to help alleviate any immediate pressures.

If you’re already feeling the squeeze on your cashflow think about:

• Negotiating with your existing suppliers – For example, could your landlord extend your lease arrangements? CRM platforms are expensive, could you discuss extending your contract but for a lower monthly charge?
• Cutting out luxuries – cars are expensive when cashflow is tight. Could you change some of your leases for a smaller model of car?
• Freezing headcount – Until you’ve got firm control of your cashflow and solid forecasts in place, consider freezing your headcount and instead focus on leveraging the existing business to get the growth you need.
• Pull the right internal levers – focus on where you can optimise existing parts of the business. Are your sales conversions as strong as they could be? Is your team performing as they should? Which area is most profitable and where could you be doing more – temp, perm or even search?
• Debt factoring – selling your outstanding debtors to a 3^rd party is a short-term option for releasing cash but always take financial advice before taking this step.

Forecasting for the months ahead

In uncertain markets planning for the future can be difficult, but without a forecast in place you’re effectively operating in the dark. The best solution is to look at scenario planning so you know what your finances and cashflow may look like should X, Y or Z happen.

To get started:

• Speak to your financial advisor or accountant, they will be able to provide you with a forecast model that you can then review and that can become the baseline for any discussions with your leadership team.
•  It is recommended that most agencies should be looking at a minimum 3 month forecast but ideally 6 months.
• Ensure your forecast captures all of your revenue lines, and all of your overheads and outgoings.
• Be realistic with your projections and base these on the actuals you’ve seen.
• Ask your accountant to review the overheads and help you see where there are potential cost savings, for example if you can lease or rent equipment.

It’s important to remember that every growing agency is likely to be facing similar challenges and you are not alone, there is help available. Forecasting and managing your cashflow effectively is fundamental for business success, no matter how optimistic you are about your ability to trade out of a difficult position. Get the basics in place now to put yourself in the best possible position for the future.

Where to find out more

For more business advice and tips on navigating the uncertain economy take a look at our recent guide ‘A 5-step guide to navigating uncertainty’ which is packed with top tips; from how to protect your cashflow and identify new growth opportunities, to how to look after your people and develop stronger relationships with your customers.

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