In the modern-day volatile business environment, businesses irrespective of their scale of operations are perpetually prone to facing a cash slump. A cash slump occurs when cash inflows are insufficient to meet cash outflows. If managed ineffectively, a cash slump can affect the long-term profitability targets of the firm. Thus, it becomes important for managers to not panic and take charge of the situation to steer clear of the flow woes. Let us take a look at how businesses can effectively manage cash slumps.
Eliminate the Wasteful Expenditures
Spending on processes or activities that do not add value to your product or service offerings from the point of view of the customers makes no financial sense. To identify such processes and activities, you might want to take a look at your bank statements. Identify the repetitive expenses that do not add any value to your business and try to eliminate as many as possible.
Focus on Customer Retention
The cost of retaining existing customers is much lower than that of acquiring new ones. You must have a robust strategy to engage with your customers and get them to continue doing business with you. Emails and newsletters are essential tools to stay in touch with your existing customers. Keep them posted about your latest offerings and products. Invite them to offer feedback and encourage them to share their experience of doing business with you. This exercise will go a long way in enabling both you and your customers in understanding each other’s businesses and expectations in a better manner.
Get in Touch with Former Clients
More often than not, your former clients stopped doing business with you not because they were unhappy with your products or services, but because there was a lack of engagement and communication from your side. This could have caused them to switch to your competitors who were more conversational. But it’s never too late. You can regain your former clients by re-engaging with them through formal communication channels. The odds of getting business from them are still fairly good.
A Reinvestment Strategy
Reinvesting the profits back into the business is a popular practice among small firms. The reinvestment method ensures higher returns and growth. Nevertheless, should you be confronted with contingency fund requirements, reinvestment of profits can prove to be catastrophic in the short-run. So, instead of reinvesting a major portion of profits, the founders can forfeit their earnings for the time being and reinvest the same in the business. This temporary sacrifice will certainly reap larger benefits in the form of higher returns. The major part of the profits can be used to fund contingency expenses. Hence, the firm won’t need to borrow funds from external sources at an additional cost.
Revising the Compensation Structure
If your business is already knee-deep in a cash slump, it would be extremely smart of you to hire a team of dedicated professionals to manage the financial woes for you. Curtailing the salaries and wages of your employees will help balance your business’s cash inflow and outflow almost instantaneously. You can offer performance based incentives and bonus, which will motivate the employees to perform with higher efficiency.
As a manager, you must work on both the expenditure aspect and the revenue aspect. You must develop ways to not only curtail the costs, but also enhance the revenue. Only then you can drive the firm out of the quagmire of cash slump.
