Managing a business when economic conditions are tough

Keep your cashflow healthy

Cashflow is the balance of money entering and leaving a business. At all times you need to know how much money your business has in the bank, how much it owes and how much it is owed. Regularly updating your financial records enables you to do this.

Many businesses overcome short-term cashflow difficulties. Often these problems can be anticipated, which means solutions can be found before the problem is urgent.

The importance of cashflow forecasts

Forecasts showing likely sales, profit and loss, enable you to identify when additional funds might be required. Then you have time to make necessary provisions, for example, by arranging a bank loan or overdraft extension to get you through periods of difficulty.

Practical steps to maintain healthy cashflow include: reducing stock, minimising costs, maximising sales volume and margins, avoiding overtrading (ie taking on work you cannot fulfil to price), recovering debt through invoice discounting and factoring, renegotiating credit arrangements and selling off assets.

For more advice, read our guides: cashflow management: the basics and identify potential cashflow problems.

Download information on cashflow management from the Chartered Institute of Management Accountants (CIMA) website (PDF, 365K) - Opens in a new window.

Practical steps to control credit

Effective credit control measures include checking new customers before granting credit and re-checking significant customers regularly (their circumstances can change). You could provide incentives for early payment, while all customers should know you charge interest on overdue payments. Chase all outstanding sums as soon as they become payable.

Debt factoring involves selling your outstanding invoices to a third party who (for a percentage) processes them and advances you money against sums you are owed. Invoice discounting is an alternative way of drawing money against your invoices. However, your business retains control over administration of your sales ledger. 

Read our guide to debt factoring and invoice discounting: the basics. 

When debts become seriously overdue and all other efforts fail, you might have to take legal advice.

Download a guide to late payment legislation from the Department for Business, Innovation & Skills (BIS) website (PDF, 390K) - Opens in a new window.

Subjects covered in this guide

Introduction
• Analyse the health of your business
• Minimise cost and maximise efficiency
• Keep your cashflow healthy
• Limit the risks your business faces
• Develop an effective survival strategy
• Access sources of business support
• Checklist - key tasks when economic conditions are tough
• Here's how my business survived adverse trading conditions
• Here's how I grew my business during a recession

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