This article was originally published on 22 November 2023. The article was republished on 14 March 2024.

Disrupted markets and supply chains, geopolitical uncertainty, unexpected costs, a talent gap; businesses have had to navigate momentous change in recent years, all the while ensuring sufficient funds to cover liabilities – all without sacrificing longer-term growth potential.

During the pandemic, while some larger businesses may have had the financial reserves to cope with a sudden drop in demand, some smaller businesses were hit by their lack of liquidity.

This underscores the need to ensure your business has the cash to capitalise on growth opportunities or the reserves to fall back on during times of volatility. 

By having a clear understanding of your working capital structure, you could be better placed to realise opportunities as they emerge or build cash reserves for potential market downturns, says Nicholas Clark, our working capital specialist.

Bear in mind there are different business savings accounts, depending on whether you want instant access to your cash or if you’re happy to lock your money away for a set period. Criteria apply.

Good visibility of what’s coming in and going out of your business could help you manage your cash position more effectively. It helps to test the readiness of your strategies, policies, processes, and systems. This oversight helps ensure you're not running out of money, and you have the tools and means to fund your operations in the most effective and efficient ways.

In the event of a shock, market volatility or industry issue, is your working capital protected? Small shifts in the economic and trading environment could significantly impact any business. Scenario-based approaches and premortems can play a critical role by giving leaders the opportunity to play out what might go wrong before it does.

Key focus areas that could help your business boost resilience to these risks are:

People

• Analyse your strategy to attract, retain, and train talent. Making sure your people are equipped to make decisions rapidly and flexibly could build resilience for future shocks as well as opportunities.

Supply chain

• The pandemic taught us the value of strong supply chain management. Have you built strong partnerships up and down the supply chain? Have you re-evaluated payment terms and contracts to ensure adaptability in times of crisis?

Finance

• Now’s the time to assess the impact of uncertainty on your financial reserves. Review your interest rate risk management policies and consider whether you need to find a new balance.
• Embed simple processes and controls such as standard payment terms and exception processes, and proactive collection procedures to provide improvements in working capital, or at the very least, protection from deterioration.

Technology

• Are you ready to accelerate the adoption of digital solutions? Do you use data-focused solutions to support inventory management rather than manual, archaic processes?
• Test your capacity to use data for insights, forecasting, and strengthening links to customers. You need to know you have end to end processes in place to account for the worst-case-scenario.

A cash buffer could help see you through a tough time, but how much is enough? Check out our article for more insight.