7 Cash Flow Management Concerns for 2023

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Cash flow management is a small business priority

Businesses of all sizes are faced with the uncertainties of increases in the costs of labor, inventory, and capital. And, unfortunately, the cost of capital, both debt and equity are higher than they have been for over two decades.

How do small business owners maintain stable profit margins in this volatile market?

Management is required to seek answers internally by using sensible, accurate, cash flow management techniques and making changes in the operations of the business that are based on the results of analyzing profit and loss statements and preparing cash flow projections based on the changes reflected in current sales and operating costs. Cash flow management is the best way to be proactive and avoid crisis management.

In the past, management reviewed profit and loss statements quarterly. In the current market P&L statements should be reviewed monthly. Management should evaluate the line-item variances and determine what line-item changes should be considered.  Every company is different, depending on the strength of the balance sheet, the stability of the market and their future objectives. Each company must address its relevant concerns and prepare monthly cash flow projections that include all expected changes to both income and expenses.

Common concerns in 2023

1. Cost of Goods Sold (COGS) 

If COGS have increased should changes be considered? Changes would include new products, amount of inventory purchased, and new vendors.

2. Marketing Policies and Costs

Are traditional marketing programs effective in today’s market?

What other market options are available that are affordable?

3. Insurance

There may be future increases in insurance coverage that must be incorporated into the budget in many parts of the country as a result of climate catastrophes and fraudulent insurance claims. Contact your insurance agent and incorporate anticipated increases in insurance costs into your budget.

4. Real estate Expenses

Every tenant should review the terms of an existing lease and consider negotiations of upcoming lease renewals. Many landlords are increasing rents and passing along increases in CAM and real estate taxes to their tenants. The definition of CAM is often adjusted to include structural repairs and equipment replacement.

5. Vehicle Expenses

Anticipated increases in fuel costs and vehicle maintenance should be adjusted in the operating expenses.

6. Salaries

Increases in salaries and benefits may be required to retain valuable employees.

7. Cost of Borrowed Funds

Interest expense on recent loans will adjust quarterly. Future expected adjustments should be included in cash flow projections.  If possible, try to renegotiate loan terms with a bank that wants to retain a business relationship. Stay tuned to changes in the financial market.

Survival tips for the balance of 2023.

Never use short term debt for the acquisition of long-term assets such as vehicles, real estate, and equipment.

Credit cards and other on-line lenders make access to capital easy, but repayment is expensive.  Always check the cost of late payments and fees. These fees vary with each resource and often they are determined by personal credit ratings. (FICO scores) of the major shareholders of the company.

Before considering borrowing at current rates, prepare and update your cash flow projections. 

Make retention of profit margins a goal and consider all the operational changes that might be required.

Related content

Preparing Cash Flow Projections in 2023

8 Recommendations for Safeguarding Cash Flow

Cash Flow Management for Small Business Owners

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