Although it is hoped that the epidemic will slow down with the arrival of summer and higher temperatures, the uncertainty continues in the world of economy. That’s why SMEs should proactively resist both operational and financial difficulties and they need to take decisive steps to avoid potential risks. It is time for businesses to implement specific strategies and to put them in a cash flow that will allow them to determine exactly how much working capital they will need.
The uncertain demand and deteriorating supply chain create cash and working capital problems in businesses.
Here are some suggestions for the SMEs struggling to manage working capital:
1. Working Capital and Supply Chain
- Businesses that affected by low demand can face surplus stock until their production slows down
- The parties who are not affected negatively can prefer early payment discounts
- For the adversely affected businesses, in order to ensure continuity of production and supply, regular communication should be established with critical suppliers
- Future orders of businesses should be optimized
2. Financial Analysis and the need for cash
Prerequisite for sound cash flow management is disciplined cash flow forecast
and this provides predictability and a focus on liquidity in businesses:
- Businesses should follow a cash-oriented approach instead of an income statement metrics
- Cash balances must be tracked on a daily basis
- Cash transfers within the company should be optimized
- Bank credit agreements must be reviewed in order to determine basic conditions and flexibility shares
- All cash flow forecasts should be revised and all assumptions must be tested.
While doing it, you can get support from part-time finance professionals (You can get support from CTC accounting which is located in Dubai – http://www.ctconsultancyuae.com/)
For the recovery phase, you should plan your cash flow wisely because when things start to turn on, you will need to spend money to earn money. It would be a shame to ride the dip and then not have enough resources to bring your business back to normal.
It is the recovery phase that you need to stay ahead of the game!