Updated: Jun 26
By far, the most important cashflow tip that you can use to stay afloat during a recession involves keeping a watchful eye on any and all spending. This means not just understanding where money is going, but also what you're getting in return.
Any seasoned entrepreneur can tell you that the early days of any business are costly. You have to invest in equipment and other assets. You'll be onboarding team members to help move your vision forward. You'll likely be investing in marketing campaigns to help raise brand awareness. The list goes on and on.
But you also need to make sure that you're getting an actual return for that spending. Take marketing, for example - do your research and identify those activities that historically have yielded the highest ROI. You can always ramp up and explore other opportunities later, but at least initially you want to focus on getting something for every dollar you spend.
Another tip you can put to good use involves making sure that you're tracking the right key performance indicators over time. Don't just let your cashflow statement be your "be all, end all" source of truth for your funds. You also need to look at metrics like operating cash flow, for example, which is the total money that your company is generating through its regular activities.
You'll want to pay attention to working capital, which is the money that you have on hand that will allow you to continue to run the business. This is especially crucial to watch during a recession, as conditions can change rapidly and you'll have to quickly adapt in kind.
Finally, perhaps the most important step you can take to preserve cashflow during a recession involves creating and sticking to an ideal budget. Naturally, that budget will vary depending on the type of business you're running or even the industry in which you're operating. But you still need to put the work in because it will help you control your spending, it will unlock insights into where your money is going, and most importantly will help outline areas where certain financial activities can be improved.
Not only will this help you navigate the potentially rough waters of a recession, but it is also essential for long-term business growth as well. But keep in mind that this is not something that you "do once and forget about." Every few months, you need to return to that budget and A) see what you can learn from how well you stuck to it, and B) see what needs to be updated to keep in line with current expectations. Never underestimate the importance of a step such as this one.
In the end, something as important as cashflow is never an element of your operations that you want to leave to chance - especially when you're talking about the precarious early days of a startup. You need access to all the funds you can get to put it to good use and you can't do that if you don't have complete visibility over money coming into and going out of your enterprise.
That's why, if you feel like this is something that is too difficult for you to handle on your own, don't be afraid to enlist the help of a trained professional. At the very least, they'll be able to take one more thing off your plate, freeing up your valuable time to focus on those urgent matters that need your attention.
If you'd like to find out more information about the cashflow best practices that you can use to keep your startup afloat during a recession, or if you have any additional questions that you'd like to go over with someone in a bit more detail, please don't delay - contact us today.
This blog is meant for educational purposes only. Articles contain general information about accounting and tax matters and is not tax advise and should not be treated as such. Do not rely on information from this website as an alternative to seeking assistance from a certified tax professional. Perlinger Consulting partners with certified tax professionals to assist our clients.