Finance

Tips and Practices for Financial Uncertainty

What counts as financial uncertainty? Well, look around you. We are going through such a period right now. Financial uncertainty does not necessarily mean a recession, but it does mean that certain events – geopolitical, financial, social – have made the economic situation perilous.

Covid was a good example of such an event, and it certainly impacted nearly every aspect of the world economy. Now, certain geopolitical events in Eastern Europe have led to a further period of financial uncertainty. We are not properly in the soup yet, but right now is a very good time to start thinking seriously about financial uncertainty, what it means, and how you can plan for a financially uncertain future.

Financial planning in times of economic uncertainty can mean many things. But it should start with a thorough analysis of your situation. As with any financial projections, you should take pains to include fixed costs, attempt to predict the variable costs, and you should plan for expansion and the investments that are needed to realize that expansion.

A Point About Cash Flow

Thales Financial, a company offering invoice financing for businesses with cash flow issues, say that financial uncertainty increases the need for these sorts of services. What we can take from this is that cash flow is also vital in times of uncertainty.

Cash flow issues are bad enough at the best of times because they inhibit growth, which is impossible without a settled cash flow. Nevertheless, it can be serious in times of financial uncertainty.

Furthermore, the financial uncertainty might be causing your cash flow issues. For example, suppliers might charge more (variable cost) at the same time as sales go down. That can create a cash flow problem – or make an existing one worse. Invoice factoring can help you through such periods, but you should take pains to alleviate the cash flow issue before long.

Tips and Practices

So, even if your business is performing well at present, challenging times call for extra care and planning. Here follows some tips and practices to get you started. All of these will help and should be factored in to any budget.

Create an Emergency Budget

This is a particularly good idea, but let’s be clear what we mean by this. An emergency budget can be a budget you create to address an urgent problem. Or, it can be a budget you create and have ready for when one comes along. The latter option here is the wisest in times of financial uncertainty.

A good emergency budget should be based on the normal budget. If you already have that, then it is not too difficult to identify what you could cut if times get hard. Then, set this budget aside and switch to it when you need to.

Create an Emergency Fund

An emergency fund is something else entirely (although it can be a part of your emergency budget). An emergency fund is simply an amount of money set aside in a separate account that is then left well alone and never touched unless really needed. This should be seen as a sort of last resort safety net.

Review Your Investments

When times get tough, you might decide to hold off on that expansion into new markets through wider distribution and investment in order fulfilment. There is, however, one especially important thing to keep in mind here. A business needs to keep moving forward; stagnation is death and therefore you should continue doing what you can to expand, perhaps by making smaller investments instead.

Uncertain times call for planning, diligence, and circumspection. The rest is up to fate.

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