Navigating the Challenges of Cash Flow

Cash flow is the oxygen of any business; without cash your business will not survive. Managing cash effectively has become more challenging than ever. Many businesses are constantly dealing with new risks and uncertainties— from continued supply chain disruptions to changing consumer behaviour, rising costs and higher interest rates.

For SMEs in New Zealand, ensuring financial stability requires a proactive approach to cash flow management. Without it, even profitable businesses can struggle to meet their obligations, invest in growth, or survive unexpected downturns.

At Andersen, we work closely with business owners to help them optimise cash flow, build financial resilience, and navigate economic uncertainty. In this article, we’ll explore key strategies to maintain a healthy cash flow and safeguard your business in a rapidly changing operating landscape.

Cash Flow Challenges

Some of the biggest challenges affecting cash flow today include:

• Inflation and Rising Costs: The cost of doing business has surged over the past few years. Such costs include raw materials, wages and salaries, and borrowing costs. These costs could be compounded if you must also deal with foreign currency matters.
• Supply Chain Disruptions: Delays and shortages can not only tie up cash in inventory or lead to unexpected expenses but also potentially losing sales or customers to your competitors.
• Changing Consumer Behaviour: Businesses could be affected by shifts in purchasing habits or level of disposable income available to them. Cheaper alternatives may appeal when consumer cash is tight.
• Higher Interest Rates: Until recently, businesses have faced increased borrowing costs and may be locked into unfavourable interest rates with a high break fee.

Given these pressures, businesses must adopt proactive strategies to maintain liquidity and financial stability. Below are some initiatives which could be adopted to improve a business’s cash flow management:

1. Improve Cash Flow Forecasting

A robust cash flow forecast is essential for anticipating shortfalls, planning for investments, and making informed financial decisions. The cash flow forecast should be part of a 3 way forecast (ie profit and loss, balance sheet, and cash flow) to ensure the forecast is providing relevant and meaningful information. 

Some characteristics of an effective cash flow forecast include:

• Use Real-Time Data: Traditional spreadsheets are prone to errors. Instead, there are specific cash flow forecasting software which could leverage off your existing accounting software system that can provide real-time financial insights.
• Create Multiple Scenarios: Model different scenarios, including best-case, worst-case, and most likely outcomes, to prepare for unexpected challenges.
• Monitor Key Metrics: Track relevant information which enhances your decision-making abilities. Debtor days, creditor days, and working capital levels are a good starting point to ensure your business is in a strong financial position.

Regularly reviewing and updating your cash flow forecast allows you to respond quickly to market shifts and avoid liquidity crises.

2. Strengthen Credit Control and Debt Collection

Unpaid invoices are one of the biggest causes of cash flow problems. The longer your business waits for payments, the greater the risk of financial strain.

How to Reduce Late Payments:

• Set Clear Payment Terms: Clearly outline payment expectations in contracts and invoices. Consider offering incentives for early payments.
• Offer online payment options: Using online invoicing and payment processing tools can help streamline the overall process.
• Review Customer Creditworthiness: Regular review of customer credit limits will provide a level of protection against any unwanted bad debts from arising. Assess a client’s financial stability and payment history being granting an extension of any credit limit.
• Enforce a Collections Policy: Have a structured approach to chasing overdue payments, including escalation procedures.

By tightening credit control, businesses can ensure they get paid on time and avoid cash flow bottlenecks.

3. Optimise Inventory Management

For businesses that hold stock, poor inventory management can drain cash reserves. Holding excess stock ties up capital, while running out of stock can result in lost sales.

How to Manage Inventory Efficiently:

• Use Inventory Management Software: Track stock levels, identify slow-moving products, and optimise purchasing decisions.
• Negotiate Supplier Terms: Work with suppliers to secure better payment terms, adjust their minimum reorder quantities accordingly, or bulk or early payment discounts.
• Liquidate Excess Stock: Offer promotions or discounts to convert surplus inventory into cash. When these goods have been sold out, consider whether you should continue to stock these goods in the future.

An efficient inventory strategy frees up cash that can be reinvested into other areas of the business.

4. Diversify Revenue Streams

Having a small number of clients can increase the risk to your business if one of these clients starts having cash flow issues. Increasing the number of clients which you deal with can help spread this risk.

Ways to Diversify Revenue:

• Expand Product or Service Offerings: Identify complementary products or services that align with customer needs.
• Explore New Markets: Consider selling to different customer segments or expanding internationally.
• Implement Subscription Models: Recurring revenue models provide predictable cash flow and increase customer loyalty.
• Leverage Digital Channels: E-commerce and online services can open new revenue opportunities.

By broadening income sources, businesses can create a more resilient cash flow structure.

5. Reduce Unnecessary Expenses and Improve Cost Control

Cutting costs without compromising quality is a delicate balance, but it’s essential for cash flow management.

How to Reduce Expenses Effectively:

• Conduct a Cost Audit: Identify non-essential expenses that can be reduced or eliminated.
• Renegotiate Supplier Contracts: Seek better terms or alternative suppliers to lower costs.
• Review Subscriptions and Services: Cancel underutilised software, memberships, or services.
• Automate Processes: Use technology to streamline operations and reduce manual workload.

A lean approach to expenses ensures businesses remain financially agile and better positioned for long-term success.

6. Secure Flexible Financing Options

Even with strong cash flow management, businesses may need external funding to navigate short-term gaps or invest in growth.

Possible Financing Strategies:

• Establish a Business Overdraft: Provides a financial cushion for short-term cash flow fluctuations.
• Explore Invoice Financing: Allows businesses to access cash immediately by leveraging unpaid invoices.
• Consider Business Loans, or Trade Finance: Work with lenders to secure flexible financing options.
• Access Government Support: Investigate grants, subsidies, or funding programs available for New Zealand businesses.

Having a financial safety net can prevent cash flow crises and provide the resources needed for expansion.

7. Continuously Monitor Performance

The economic landscape is constantly evolving, and businesses must be able to adapt quickly to changing conditions. Timely and regular reporting is critical to help navigate through these uncertain times.

How to Maintain Agility:

• Regularly Review Financial Reports: Ensure you and your team stays on top of cash flow trends, expenses, and revenue projections.
• Adjust Strategies as Needed: Be prepared to pivot based on market conditions, customer demand, or economic trends.
• Seek Expert Advice: Work with trusted advisors to optimise financial strategies.

Agility is key to surviving and thriving in a post-pandemic world. Businesses that monitor performance and adapt quickly will be in the strongest position for growth.

Proactive Cash Flow Management is Essential for Business Survival

Managing cash flow in today’s economic climate requires a combination of forward planning, smart financial strategies, and operational efficiency. Businesses that take a proactive approach will be better positioned to navigate any challenges and seize opportunities.

At Andersen, we help businesses implement cash flow strategies that drive long-term success. Whether you need help with forecasting, cost management, or securing financing, our team of experts is here to support you.

Want to take control of your cash flow and future-proof your business? Contact the team at Andersen to discuss how we can help.

Author - Kelvin Sam