Build systems that hold up under scrutiny

In challenging economic times, the role of finance and accounting departments becomes even more critical. The decisions made in these departments significantly impact a business’s survival and ability to perform during tough times.

However, the approach to managing finances should not merely be about cutting expenses; it should be strategic. In this article, I explore five key strategies that your finance and accounting departments can employ to help navigate a recession.

1. Reevaluate All Spend and Prioritize Accordingly

The first step is to reevaluate all expenditures. Do not immediately resort to cost-cutting.

Take the time to assess your current financial situation while considering your future goals. This process should involve a thorough examination of your entire budget, both expenses and income streams. This approach allows you to prioritize spending on initiatives that align with your strategic objectives while eliminating or deferring expenses that may no longer be relevant or necessary.

Have your team look closely at the contract terms and conditions of all the company’s spend. Knowing what each vendor relationship allows with respect to payment terms will help in the next step.

2. Relentlessly Manage Cash Flow

When your business faces challenges, cash flow management [LINK] is paramount. The process is two-sided: income and outflow. Your business must receive payments on time, and you cannot risk situations where it will not.

You need to hold cash as long as possible and let it go in priority order. For example, if you pay employees on the first of the month, that is a priority payment. On the other hand, if a vendor accepts payment in 60 days, wait to make that outflow. Overall, effective cash flow management is going to include the following:

• Invoicing clients promptly and following up on payments diligently. Do not let outstanding invoices linger, as they will strain your cash flow.
  
• Do your best to avoid high-risk partnerships that could jeopardize your cash flow. Before your company takes on a new client, make sure your staff evaluates their creditworthiness. Are they good for the money they will be charged for goods or services?
  
• If you have a deep understanding of both inflows and outflows, you can use this knowledge to plan for potential negotiations with vendors. Your business has financial commitments, too. This allows you to avoid overdue payments or making early payments when the cash needs to be spent elsewhere first.
  
• Instead of relying solely on bank balances, you should learn your cash flow patterns. You know you have certain recurring expenses due at certain times, salaries on the first, rent due on the fifth, utilities on the 15th, etc. Your vendors have specific terms in their contracts that manage when you must pay them. Look at the entire pattern of your outflows and use them to make informed decisions about when to request payment extensions or negotiate contract terms. If you do not need to upset a vendor relationship, don’t.

3. Include Strategic Initiatives In Your Cash Flow Planning

Every business has longer-term initiatives that need cash; your cash flow planning should encompass strategic initiatives. Collaborate with finance and accounting to ensure that the investments you want to make align with available cash and revenue projections. It is essential to assess whether your cash flow can support the investment.

This evaluation may lead to negotiating favorable payment terms from a new vendor or requesting upfront payments from a new client or partner. Only bargain for worthwhile accommodation, and only if you need to.