Back December 16, 2016

Cope with Low Cash Inflow Months

In the world of project-based companies, the winter Holidays break is often followed by another break, mostly imposed by the stagnation of projects or absence of commissions. Not many companies start their operations full speed ahead, right at the dawn of the New Year. This means less outsourced services, especially for the companies in the creative industries. For these businesses, the second half of December, January and the beginning of February are low, productivity wise; as consequence, income is scarce, even non-existent. Such situation brings about an increased need for extra attention to the business’ cash flow, to keep it from “freezing”.

What’s to be done to stay away from “Frosty, the 0 Cash Date”?

It all starts weeks before when you take a look at the cash plan. Maybe you don’t have one yet, so what you can do is to take a look at the accounting documents. There are two things to check:

  • The cash situation in the same period of the previous year;
  • Your predictions (sales, other revenue sources, costs) for the beginning of the New Year. If you haven’t done any cash forecasting yet, now is a good moment to start, based on your financial and sales history.

This assessment will give you an approximate idea of how the company’s accounts will look like during these low months. “History repeating” is not such a popular saying for no reason.

Once you got a clear picture of what you can cash in and what needs to be paid, the next step is to start planning.

In the best of cases, there will be money coming in – either from some project starting early, an advance payment or clients honoring earlier invoices. You just need to check if your payments will exceed the available cash. If not, consider yourself lucky.

In a good enough scenario, in the absence of revenue, the cash reserves will be just enough to cover the expenses for those quiet months. You won’t have much of a profit, but not a loss, either; it gives you the space to breathe and plan the upcoming months.

The worst-case scenario is the one with expenses exceeding the money in the bank accounts and no income in the horizon. You want to be prepared for such situation, no doubt. Figure out which costs can be cut down (maybe office related ones, acquisitions to be put on hold, outsourced services you can postpone). Remember that paying the salaries is your priority; you do want to keep your team together for when projects start coming in. The other costs – you can juggle with them; maybe not so much with the amounts as with the payment terms.

Bottom line is to find ways to diminish expenses so that the money you have can cover them. If this is still not happening, consider a loan. There is nothing worse than losing resources (employees, collaborators, suppliers) and credibility because you weren’t able to honor your debts. It will prevent you from functioning properly once the clients start reaching out to you.

In short, the action starts with preparation. In order to face the low-income months, begin with forecasting the cash flow for that particular period. Only then you know clearly what needs to be done: cut expenses, get a loan, collect pending payments.

Stay prepared and use those weeks to think about the business strategy, how to keep your customers happy and the team engaged, instead of worrying about money. You can always try ThinkOut to help you with the cash forecasting. See how it works for you.