In 2022, 22.3 percent of Canadian businesses said their debt level increased after the pandemic. The figure proves that the pandemic introduced cash flow challenges to modern chief financial officers (CFOs).
If your business is also in debt after the pandemic, you must improve your organization’s financial plan. Here are simple tips that can help you get started.
1. Update Risk Management Tactics
Challenging business conditions can expose gaps in your business that have yet to be apparent. These new issues may threaten your company’s viability. The following are examples of risks you need to address:
- Relying too much on a small number of high-paying customers
- No alternative key suppliers
- Depending too heavily on a single source of money
To address these risks, you need an operational risk management strategy. Having an effective plan in place can reduce the risk of losses.
Make sure to have a risk management tactic to address the potential losses from fraud, poor practices, and unethical employee behaviour.
You should manage employee activities and the risks they take through a code of conduct. Your policies should articulate the company’s values supported by sanctions in case of breaches. Recruiters must hire staff with beliefs similar to the organization and show commitment to those values.
It is recommended to revisit strategic plans and change them regularly. Remember that the goal should reflect the organization’s current financial situation. Revised budgets must also reflect the updated strategic plan.
2. Cut Down Long-term Liabilities
A CFO can save more money by reducing environmental and other long-term liabilities. They can use the new pool of cash for investment in other high-performing business ventures.
Regularly reviewing balance sheets can help CFOs determine if there is money to distribute. Doing so can help them ascertain if the organization is still spending cash on an outdated policy. It will also help them make changes for a more efficient cash flow.
3. Use Dormant Cash
Some CFOs do not use dormant cash among foreign subsidiaries or joint venture partners. This practice can be due to a need for a tax-efficient or operational way to deploy it. Moreover, dividends from partnerships may not arrive until later.
To address this gap, CFOs should perform a thorough review of their balance sheet. This practice is an excellent way to improve cash management. It also helps CFOs quickly identify partners with outstanding payments. Improving cash management also prevents frequent cash transfers.
For instance, a telecommunications firm discovered that half of the cash on its balance sheet was inaccessible. Their CFO can update the company’s bank account structures to free up cash and reduce dependence on external funding.
Another way to prevent this issue is by hiring tax experts. Tax accountants can quickly identify dormant cash and recommend tax-efficient ways to use it.
For example, Faris CPA is a Toronto-based tax accounting firm providing high-level accounting, taxation, and business advisory services. With the company’s help, CFOs are updated on market trends and can learn the best practices for financial reporting.
These are three simple tips to help CFOs address cash problems. These can guide businesses to use their money more efficiently despite financial challenges.