Brace for Impact: Cash Flow Management Tips With Rising Costs

Omar Visram
Brace for Impact: Cash Flow Management Tips With Rising Costs
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At the beginning of April 2024, you may have noticed a slight spike in gas prices, which was directly linked to the latest carbon tax increase. This tax increased from $65 to $80 per tonne (it was once $20 in 2019). 

While drivers noticed an extra 3.3 cents at the pump, this tax surcharge affects dozens of fuel sources, including natural gas and propane. The latest increase is significant for many businesses, straining already tight budgets. 

As rising rates drive up total expenses, it's more critical than ever for businesses to focus on effective money management. You need complete, accurate data to make the best decisions — which detailed, organized financial records provide. 

Here's why cash flow management matters as costs continue rising in Canada.

Cash flow management - why does it matter?

Cash flow is the lifeblood of any business.

Let's start with the basics — the difference between cash flow and profit:

  • Cash flow is the total amount of money going in and out of a business. If you have a positive cash flow, more money flows into your organization than out of it within a set period. 
  • Profit is money gained from an activity after paying business-related costs.

These terms are often used interchangeably, but they're unique. You'll need to understand cash flow statements when managing cash flow.

Reading and analyzing cash flow statements

When analyzing cash flow statements, they are typically broken down into three sections:

  • Operating activities (revenue and expenses)
  • Financing activities (cash flow related to selling and buying assets)
  • Investing activities (debt and equity financing)

Reviewing your cash flow statement shows what activities generate money for your organization. This step can help provide insight into your business's health. Since this analysis differs from profit, you'll also want to interpret figures related to other financial documents, such as your income statement and balance sheet

While you may be concerned about a negative cash flow, you must also consider other variables related to that period. Did your cash flow recently change after you decided to expand and invest in future growth? To gain a more accurate picture, compare cash flow statements from one period to another.Tip: Go paperless to automate cash flow management and improve financial forecasting methods.

The role of forecasting in cash flow management

As an SMB or non-profit, you may minimize the risk of running out of money. Cash flow forecasting can help you ensure accurate cash management by identifying differences between expected and actual cash flows. If you can anticipate potential cash flow issues ahead of time, you can pivot before a more devastating issue occurs.

There are two techniques you should be aware of:

  • The direct method is based on actual inflows and outflows. While this method tends to be more accurate, it can be challenging and time-consuming. This option is ideal for short-term forecasts that require a lot of detail. 

The indirect method begins with your net income, adding or subtracting items related to non-cash transactions. This option is ideal for long-term forecasts that rely more on trend analysis.

Strategies for managing increasing expenses

The recent tax hike is just one of many rising expenses. Data shows that 65% of Canadian companies are feeling the pinch, and rightfully so. According to the BDC, the cost of doing business has accelerated by 600%. While that's an overwhelming thought, there are strategies you can take to stay afloat, including the following.

  • Conducting a thorough expense audit as part of a larger proactive cost management strategy. You must regularly monitor financial performance, paying close attention to money going out. You can then pinpoint what expenses are necessary and which you can eliminate moving forward. Check out this resource if your credit card expenses are out of control. 
  • Optimizing operational efficiency means reducing your costs by leveraging resources more effectively. Leveraging technology and automation are great starting points. Learn more about optimal technology and infrastructure practices during uncertain times. 
  • Negotiating with suppliers and creditors can be a good strategy for achieving cash flow optimization. Managing these relationships can help you improve your financial position, reduce debt, and enhance cash flow. Be realistic, honest, and flexible when submitting a proposal.

Revenue enhancement techniques

If your goal is to start improving your bottom line to balance rising expenses, maximize the revenue streams you already have. 

Here are some strategies:

  • Adapting pricing strategies by researching competition-based, cost-plus, dynamic pricing, and value-based models. 
  • Identifying new revenue streams either by creating new products and services or expanding. Diversifying current offerings by developing packages or upsell options is a great way to earn extra revenue.
  • Improving customer retention and acquisition strategies is an ongoing strategy that requires building brand trust, remaining communicative, and implementing a more personalized customer experience.

Develop plans to mitigate risks and lean on technology as you work toward increased revenue. For example, predictive analysis tools can help you do both, contributing to better cash flow management before a situation becomes dire.Next step: Check out Strategies for Surviving a Cash Flow Crisis if you're in a bind, and plan accordingly using these ten tips.

Invest in proactive cash flow management

Effective cash flow management practices are essential for any business, regardless of how the economy evolves. 

If you don't already, regularly analyze, monitor, and optimize your organization's money inflow and outflow.

Starting today, leverage digital cash flow management software like Quickbooks Online. This level of automation can streamline certain tasks so you can focus on the analysis component of your cash flow management strategy. You should also complete a cash flow projection for the upcoming year.

Need more support? Unsure how to approach your unique situation?If you want to improve your cash flow management strategy, the experts at Enkel can help. Simplify your accounting process by contacting the Enkel team today!

Are you ready to hand your organization's bookkeeping over to the experts?

The team at Enkel specializes in helping small business owners and nonprofit leaders get clear visibility into the financial health of their organization. Learn more about our bookkeeping, accounts payable, accounts receivable, payroll and controllership services today.

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