Preparing for cash flow crises – How to keep your business thriving

John Hoskin gives advice to small businesses on preparing for cash flow crises.

You spend endless nights ‘polishing’ your shiny new business idea, and before you know it, it’s turned into a reality. Business is great, and you offer the best customer service in town, but what happens if the cash runs out? Simple answer: it’s probably the end of the business too.

The secret to avoiding such a calamity is good and very realistic forward planning – this does not mean that you have to count every single penny you spend years in advance. What it does mean, is that you should have a week-by-week cash flow plan for the next year that’s made up of a realistic assessment of what income you’ll receive, and when, but also covers all the major outgoings like:

  • Staff
  • Raw materials and stock
  • Premises
  • Technology
  • Utilities
  • Insurance
  • Travel
  • Professional or Subscription fees
  • Tax payments

Yet, this will only work if you are truly realistic. It’s not necessary to plan for the absolute worst case, as this would probably hold you back from starting the business in the first place. You should however base your plan on the lower end of the range of what sales you estimate you’ll achieve, and then attempt to monitor your costs closely to make sure you stay within budget.

Resist the temptation to include things like contracts you think you might win but aren’t sure of, unless they are pretty certain, since they don’t fall under the ‘realistic’ category. The idea of a cash flow plan is to know you can survive, even if things like this don’t come off. In addition, follow-ups are really important and you must make sure to revisit your plan to a) see how the actual position has turned out and b) keep it up to date it for any changes to the business going forward, for example: better or worse sales than expected, new contracts, changes in supplier prices or more staff.

No cash? No problem

If your business is a non-cash business, think about customer payment – how will they pay? It may make sense to offer a small discount for early payment or ask customers to pay by direct debit. Regular cash flow and the time you’ll save in chasing payment will turn out to be a lot more valuable than a little extra revenue.

Every great business must master the art of promptly and consistently delivering products and services to customers. It’s the best way to keep them happy and coming back for more. Without compromising on this too much, you should generally try to keep your fixed overheads as low, and lean, as you possibly can – especially in the early days of the business. This will keep as much cash as possible free for covering any difficult periods and also give you the flexibility to respond to customer demands or other issues.

Prepare for the tough times

In the life cycle of any business, tough times are inevitable. When you find yourself in this kind of situation, the smart thing to do is to cut out any discretionary spending, meaning that only the things that keep the business running should be factored into the spending budget. Cut costs and try to work out cheaper ways to achieve the same outcomes.

Talking to your bank is a great help – especially if you have a good track record and a credible story. A good relationship with your bank could lead to help and support – you might be able to get a short-term overdraft.

The taxman is your friend

Finally, don’t forget to pay the taxman! If you feel like you can’t, you must make sure that he knows – so speak to him. The most likely scenario is that you will not be ignored and it’s far better to contact HMRC and explain your cash-flow issues before they contact you.

As a result of your upfront honesty, a ‘time-to-pay’ arrangement will probably be agreed, whereby you pay outstanding amounts by instalments over an agreed period of time. This way you avoid penalties and interest that may have been due if you had to be chased by HMRC for non-payment of tax.

Further reading on cash flow: How to manage your cash flow as a small business

Stephanie Beer

John Hoskin, founder of

Related Topics

Managing Cashflow

Leave a comment