Dealing with a sudden cash flow crisis, even if you’re working hard to avoid shortfalls, is hugely distracting. A formerly reliable customer might take much longer to pay than anticipated or a large consignment might fail to show up, leaving you out of pocket. If you’re starting a business, it could simply be taking longer than expected to turn a profit.

Red Light Warnings for a Cash Crisis

Develop red light systems to warn you automatically if something needs querying:

  • Check as early as possible if leads, orders, or sales, fall below a certain threshold, or if planned sales are delayed or a substantial customer stops buying from you.
  • Key indicators such as profit margins, liquidity ratios and stock ratios deteriorate beyond an agreed limit. Make sure you have regular feeds of how your business is performing.
  • You also need to know about any substantial invoices that are in dispute, particularly late debts and customers exceeding their credit limits.

Building productive relationships with your key suppliers is important, so they are prepared to extend extra credit to you when you need it.

If you have accounting software then it should be relatively easy to view your red flags weekly, monthly (or any period you set).

Identify the Causes of a Cash Crisis and Take Action

Below are some common causes and possible solutions of a cash crisis you may need to solve:

  • A major customer hasn’t paid on time. Implement stricter credit control and better debt collection procedures. Contact them to ensure you have the right purchase order and the invoice has been sent to the right person. Even check if your contact has gone on holiday and forgotten to pass on your invoice.
  • A rise in the cost of production has eroded your profit margin. Try and source less expensive materials or supplies or decide if you need to raise your price. Monitor your gross profit margin for any further profit slippage.
  • Your business overheads have blown out. Identify specific expenses that have increased and see how you can reduce them. Regularly monitoring your net profit margins to spot any out-of-proportion increases so you can take timely action.
  • Your business is growing faster than your capacity to fund the growth (your working capital). There’s usually a time gap between selling goods or services and getting paid by customers. Meanwhile there are bills to pay. See if you need to slow down to avoid failure through overtrading or raise the necessary working capital to get you over the temporary cash shortage.
  • Sales have been slower than predicted. Review your marketing plan and sales campaigns. Alternatively, if you can’t see any future improvement in immediate sales, consider other markets and targets.

There may be other causes such as the failure of a major contract or you bought a large asset at the wrong time and you now need that cash reserve for working capital. In each case, understand the cause and the action you’re taking to avoid a repeat, such as diversifying your customer base or using your cash flow statements and forecasts to time purchases more appropriately.

Sourcing Finance in a Cash Crisis

If you do find yourself in a cash crisis (it’s a temporary hitch and the business is still sound), there are a number of funding options to consider, ranging from self-financing or bank loans to finding a business partner. The relative attractiveness of each option will depend on the size of your cash flow shortfall and how long you’re likely to need the cash.

Internal Funds

Before you look for external sources of funding however can you free up cash from within your business? For example:

  • Offer customers a discount for early payment or ask them to pay immediately.
  • Offer for customers to pay by credit card when usually you don’t.
  • Hold a sale of surplus or slow-moving stock to raise cash quickly.
  • Ask suppliers to take back excess stock and a credit or give you longer credit terms.
  • Sell underused assets and rent the equipment instead, as and when required.
  • Downgrade or sell vehicles and lease instead.
  • Reduce your drawings from the business until revenues improve.
  • Your accountant and advisers may be able to suggest other ways to release the locked-up cash in your business.

Bank Loans

If you need a business loan and have a good banking track record, it could be little more than a formality to get a higher overdraft facility or access to a business loan to tide you over. If you’re going to need quite a lot more money, you’ll likely have to present a more detailed business plan and financial forecasts.

Invoice finance

If you have cash tied up in unpaid invoicing, you might qualify for invoice finance. This facility enables you with immediate access up to 80 per cent of the value of any unpaid invoices that your business might have. It helps free cash flow by releasing money from unpaid invoices as and when you need it.

Partners and Investors

If your business can’t afford to service loan repayments out of surplus cash flow, then it may need more capital so you could consider taking on a business partner to invest in your business. There are advantages but also pitfalls to avoid. Get expert advice first from your accountant and your lawyer – they may know of suitable investors. Be aware that you’ll need to share the ownership of your business if you go down this path.

Family and Friends

You could ask family, friends or business colleagues to help out with a temporary or longer-term loan. It’s best to put the agreement in writing and get everyone to sign it, so that both sides are clear on what has been agreed. Be aware that this sort of agreement could strain personal or working relationships if things go wrong, so treat it as a last option.

Summary

Managing cash in a crisis is stressful for any business owner, but you do have options starting with preventative measures such as cash flow statements and forecasts and sourcing finance.

Need to talk about your cashflow and options? Book in a free chat with the team at MBP here.

If you’ve been reviewing your business’s financial position and are looking for ways to improve your cash flow, one of the first things to look at are your expenses. As your business grows, so will your costs, but there are things you and your employees can do to keep them down as much as possible and so improve your cash flow by optimising overheads.

It’s important not to rest on your laurels. Continually thinking of ways to reduce your overheads is essential for a healthy cash flow, so conducting regular reviews of your business expenses should be a regular task.

Reducing Expenses

Although there’s no getting around paying for things like phones, internet, power, office equipment and rent, there are ways to optimise these overheads and keep these costs to a minimum. Review these expenses and consider the following:

  • Communications – with fierce competition in this industry, it should be easy for you to negotiate a better deal for phone and internet use. Talk to your current supplier about a new deal and if they won’t come to the party, shop around for a new one.
  • Energy costs – some of this is obvious, such as turning off things when they’re not in use. Green energy options are worth looking into, especially if you’re shopping around for a new energy supplier.
  • Rent – if your business is not client-facing, you might consider working from home. Not only can you claim your home office as a business expense, but not paying commercial rent is a huge saving. More and more businesses are becoming virtual – it’s worth considering if yours can be as well.

It’s worth joining industry associations relevant to your business. They often organize discounts for their members. And the networking contacts you make will often have ideas about savings or deals they’ve made that are reducing their expenses.

Outsourcing

The great thing about outsourcing is that it frees you up to spend more time in activities that grow your business. This is especially true of administrative tasks, so you could look at outsourcing:

  • Payroll – this is time consuming and often stressful, especially if you make mistakes. Outsourcing this task eliminates those factors and frees you up for more profitable activities.
  • IT systems – unless you’re an actual IT-based business, retaining someone to look after your IT needs is a very costly expense. Outsourcing your IT often means you can negotiate a contract that’s almost as good as having someone on site because there’s lots of competition in the IT industry.

You might also want to consider reducing your staff expenses by converting some of them to part-time instead of full-time employees, especially if the workload justifies it.

Ways to Save

There are a number of things you can look at here, tried-and-true methods for keeping costs down. Some of the most effective are:

  • Business taxes – talk to your accountant or a business tax specialist about ways you can legally save on your taxes. For instance, can you claim an area of your home as an office, which is a legitimate business expense?
  • Importing – you could look at importing your business’s raw materials. It could be that they’re cheaper to buy from an overseas supplier than the one you’ve been using locally.
  • Make the most of technology – moving your accounts to a cloud-based system, reducing manual paperwork processes and communicating with your customers over Skype or Zoom instead of visiting them face-to-face will all help reduce costs. You can even have your staff work from home and, as mentioned above, save on renting a commercial space.

Summary

As with most things in business, optimising overheads comes down to planning and creative thinking. Talk to your staff as they might have ideas on savings, and it’s important to make sure that they’re doing what they can on a regular basis to keep costs down.

It is also important to keep in mind that cutting expenses can often lead to a slower recovery for your business following a cashflow crisis. Making smart choices in what to save on so that you don;t limit your ability to scale back up in the future is essential to your long term survival.

Optimising overheads by cutting costs is a short-term solution to what may be a long term issue. If you need some advice and support, reach out to the team at MBP for a free 30 minute consultation. You can book a chat with us HERE.

As a small business owner, you’re probably keeping a close eye on every cent you spend. You need to have a good eye on your income and expenses to manage your cashflow, so that’s a good thing. However, it might mean that you are wasting time micro-managing your finances and not hiring people to help give your business a boost. Hiring a bookkeeper can be a great investment fro any small business.

What Does a Bookkeeper Do?

A Certified Bookkeeper will take care of your daily business financial management. They’ll make sure your books are up to date, balanced and reliable so they can support the best possible decision making. They’ll manage your invoicing (accounts receivable), track your receipts and general expenditure and reconcile your accounts payable.

All of the frustrating daily and weekly financial tasks that you hate or that just sucks up half your day, they love doing. Not only do they love that work, they are likely a lot faster and more efficient at doing it than you are.

Hiring a Bookkeeper Saves You Time

Unless you’re a bookkeeping whizz and love those debits and credits, you might find your bookkeeping to be a headache-inducing waste of time. Chances are, you’ll put off your bookkeeping until its a massive chore. This means it takes up more time and you like it even less. Even if you do enjoy it, doing this day-to-day book work is dragging you away from the parts of your business where you should be focusing your energy and passion. Your time is valuable. You’re much better investing your time in value-adding activities like sales, networking and marketing your business.

The time you spend trying to understand your financials could be better spent on tasks you’re good at. A Certified Bookkeeper will be more efficient than you, they won’t spend all day reconciling bank accounts and attaching invoices and receipts. They’ll have it done in minutes. They won’t have as many errors and overall, they will save you a mountain of stress.

Your time, and your sanity, are worth investing in a Certified Bookkeeper.

A Bookkeeper is on Top of Your Cashflow

Hiring a bookkeeper means that you’ll always have someone with an eye on your cashflow.

They’ll help you get paid. Many small business owners have a hundred things to get on and do. It’s easy for things like invoicing and accounts receivable t fall down the list. It is essential to your business survival that you send out invoices as soon as possible. It is equally as important to follow up with late payers to see what’s going on. These are harassing calls, just a friendly, personal reminder that the invoice is outstanding and due for payment. You might feel bad doing this, which is why its the perfect task for your friendly, professional bookkeeper.

Your bookkeeper will also ensure that you don’t end up getting any of those calls from your creditors. They’ll ensure that your bills are paid on time.

Id there any better investment in your business than one that makes sure you’ve always got cash flowing and money in the bank?

Hiring a Bookkeeper Prevents Costly Errors

A Certified Bookkeeper knows their stuff. They are committed to professional excellence and undergo ongoing professional development to make them experts in their field. They won’t make the same mistakes that you’ll make, either because you’re rushed or because you haven’t got around to reading the latest 53 page IRD tax bulletin.

Some mistakes might seem small and insignificant at first. However, data entry errors, mixing up expenses and mis-claiming GST, can all quickly add up. These mistakes cost you more time and more money.

If you are doing your bookkeeping and then relying on your accountant to clean things up a year-end, you’re burning money. What you are doing is then getting your accountant to be your bookkeeper, at accountant’s hourly rates! It also takes a lot longer to unpick and re-reconcile transactions that happened months or even years ago.

At the worst end of the scale, consistent mistakes, even little ones, could flag you for an IRD audit. An audit can cost thousands to resolve, and that’s even if things are nice and tidy!

It’s best, and cheapest, to get it right from day one. Get in an expert to keep your books in order.

Certified Bookkeepers are Experts

Are you up to date on every movement in tax law? Do you understand how small changes to the rules effect your business? A Certified Bookkeeper is. They can advise you about any changes that are coming that may impact on your business and can offer insight into how to prepare and minimise any impact or maximise any benefit.

Hiring a bookkeeper can also provide you with insight into your company’s financial position. If you’re short on cash, overspending in certain areas or struggling to collect accounts receivable, your bookkeeper will tell you. They can also work with you to help remedy these issues. If there is something you don’t understand about your business finances, your bookkeeper can help to explain it to you. Because they are slightly more human than accountants, they can even explain it all in plain English, not accountantese. So your business financials will never be a mystery again.

Hiring a Bookkeeper is an Investment in Your Business

With a Certified Bookkeeper on board, you can sleep easy knowing your business books are in the hands of a professional.

Not all bookkeepers are created equal. At MBP, all of our bookkeepers are trained professionals and are Certified Bookkeepers with the Institute of Certified New Zealand Bookkeepers (ICNZB). The ICNZB ensure that they are professionally competent and that they uphold the highest standards of continuing professional development and ethics. And the best part, our Ceritfied Bookkeepers are about half the cost of an accountant, so you get exceptional value from your investment.

Want some help with your bookkeeping? Get in touch with the team of Certified Bookkeepers at MBP, or book in a chat with us today.

New Zealand will move down to Alert Level 3 from start of business on Tuesday 28th April 2020. The change in the alert level will mark a shift from ‘essential’ business operations to ‘safe’ business operations, with many strict restrictions still in place. For the construction industry, this means a return to work, provided specific heightened health and safety standards can be strictly adhered to.

We have had a number of discussions with our building and construction sector clients in recent days and know this will be very welcome news. To ensure that the last month (soon to be five weeks) of lock-down have not been a very expensive waste, it is essential to follow the new industry guidelines.

Health & Safety Guidelines for Construction at Level 3

Last week, Construction Health and Safety NZ (CHASNZ) in conjunction with the joint government/industry Construction Sector Accord developed and released detailed construction health and safety standards and protocols for the residential, civil and vertical construction sectors.

Each construction site operating at Alert Level 3 (or level 2 when we get there) needs to have a Covid-19 Control Plan in place. The plan will guide how the principal or main contractor and contractors will manage work on site and the controls they will use to minimise the risk of Covid-19 transmission.

Responsibility for Administering COVID-19 Control Plans

The Covid-19 controls are over and above the existing health and safety plan requirements for residential construction sites. It is the responsibility of the site owner (the party responsible for overall site coordination) to ensure this plan is in place.

The site owner may be a client (e.g. in the case of a self-managed renovation); a group home builder; a project manager; or a small builder / contractor. There must always be a nominated person on site when work is occurring who is responsible for administering the Covid-19 management plan. This can be shared among multiple people from different contractors for an individual site if required.

Read the CHASNZ Protocols

The Covid-19 Health and Safety Protocols for Residential Construction Sites outlines the minimum standards to be implemented at residential construction sites. These protocols apply at Alert Level 3 and 2 and supplement the Covid-19 Standard for Operating New Zealand Construction Sites developed by CHASNZ.

Download and read the residential requirements for construction in Alert Level 3 here, and find out more about the requirements for other types of construction here.

Need some help getting your head around the new protocols? Book in a chat here.

New Zealand will move down to Alert Level 3 from start of business on Tuesday 28th April 2020. The change in the alert level will mark a shift from ‘essential’ business operations to ‘safe’ business operations, with many strict restrictions still in place. For hospitality at level 3, this means contactless takeaways only, provided specific heightened health and safety standards can be strictly adhered to.

We have had a number of discussions with our building and construction sector clients in recent days and know this will be very welcome news. To ensure that the last month (soon to be five weeks) of lock-down have not been a very expensive waste, it is essential to follow the new industry guidelines.

Is it Even Viable for you to Open?

The first thing you need to carefully consider is can you actually afford to open at Alert Level 3. For many businesses, the restrictions at level 3 make it more expensive to open than to stay closed, do you know if your business is one of those?

Do not rush and think that just because you can fire up the kitchen again that you’ll be better off. You need to have a plan and a high-level cashflow forecast for every scenario. Some key questions to ask yourself before even considering opening:

  • Do I have the ability to do takeaway?
  • How will customers order?
  • How will customers pay?
  • How will the orders get to the kitchen?
  • What is the likely demand?
  • How  many staff will I need?
  • How do we manage the staff we don’t need?
  • Is our kitchen big enough to allow safe operation and social distancing?

These are just a few of the essential questions you’ll need to ask yourself. If you need a hand running through these, book in a free 30 minute chat with one of our business advisors.

We also have a range of free and fully funded services to help you make informed cashflow decisions. You can access our free Business Continuity Plan (BCP) Guide here and download a copy of the free BCP template from there. That will help you with many of the decisions you need to make.

Preparing your Business to Open

In the lead up to the move from Alert Level 4 to Alert Level 3, you can start getting your business, premises and staff ready for work.

Talking with your staff is really important and should be one of the first things you do. Engaging with them is essential to making sure they are happy, healthy and safe to work. They will also need to be up-skilled on the new health and safety protocols and requirements that you will have in place.

Look at your menu. What items can be done with contactless delivery or pick-up? What things will be impractical to serve?

You should have completed a stock-take before shutdown and know what your need to reorder to get back up and running. If you haven’t, head in and get the stock take sorted so you know where you’re starting from with your stock. A lean stock flow will be essential. There is no knowing if we will go back into lock-down and customer demand is unpredictable so don’t carry more than just a couple of days of stock at a time.

It is likely you’ll also need to order in some extra take out containers and other items to facilitate a changed operating environment if takeaway is new for you. If takeaway is new, its even more important to have made a well informed decision on the viability of opening.

A key task to be undertaken in the lead up to opening will be a floor to ceiling clean of you premises. After more than a month of being closed, its likely the place will need more than just a vacuum and a wipe over. Set aside a day to get in there and give it a deep clean and sanitisation. Health and Safety has never been more important. The last thing any business needs is to become a center of a new cluster and the reason the entire country gets kicked back to level 4 and locked-down.

Health & Safety Guidelines for Hospitality at Level 3

Hospitality at Level 3 is not business as normal. However, you should already have most of what you need in place from before lock-down.

We’ve received many questions about the need for gloves to be work when working. If you did not previously wear gloves when working then there is no requirement for them to be worn now at level 3. While it might seem a smart move to use gloves, they can actually become a recipe for unsafe and unhygienic practices, especially if your staff are not used to working with them. Regular hand washing with soap and water is often your best option. Avoid relying on sanitizer as this is less effective than simply washing your hands properly (it’s also more expensive).

Similarly, people have been asking us about masks. These are probably a better protective option than gloves. It must be noted that they are most effective at preventing, or at least limiting, the chances of your staff contaminating the food you’re preparing rather than protecting staff from contamination from customers. Contactless processes and social distancing between your staff and customers is essential. Masks will be easy for front of house staff to utilise as long as they discard and change them regularly, especially after breaks. It may be harder to utilise them with staff in the hot confines of kitchens. Make them available for your staff and encourage their use.

The best thing you can do is to ensure that any staff returning to work have had no chance of contracting the virus and have had no symptoms at all over the previous week or more.

Every business in hospitality at Level 3 (or level 2 when we get there) should have a Covid-19 Control Plan and policies in place. The plan will guide how the business and its employees will manage work on their premises and the controls they will use to minimise the risk of Covid-19 transmission between each other and to customers.

WorkSafe has some great guides and template safety plans on their website. You can access them here.

Read the WorkSafe Guidance

Worksafe has some really good information for all businesses, including hospitality at level 3. It is well worth taking the time to run through this before you make any plans to open.

The governments dedicated COVID-19 website also has a wealth of information about what level 3 will look like overall. Click here to have a read through of all the info on covid19.govt.nz.

Remember, just because the cafe or restaurant down he street is opening, doesn’t mean you have to. Don’t make a knee-jerk reaction to open. Make a calm and well informed decision that is in the best interests of your business, your team and your customers. As a nation, we’ve all been really supportive of the lock-down and the extraordinary measures taken to preserve our health. Your customers will still be there in two weeks and you’ll be there, healthier than ever, to serve them.

Need some help getting your head around the new protocols and whether its worthwhile opening? Book in a chat here. We’re here to help.