If your creative enterprise suddenly loses a major client or income stream the two immediate strategies to remedy the situation are to ‘find more money’ and ‘reduce your costs’. Beyond the immediate difficulty, you also have the opportunity to secure your business against future shocks.

Putting urgent energy into reducing your costs will have the immediate benefit of freeing up cash and will likely create the long term benefit of strengthening your on-going profitability. The process of analysing your expenditure so that you can cut costs quickly without disabling your business, will lay the knowledge foundation you need to get your business in better health in the longer term.

The steps outlined below are a combination of quick-fixes and tips for getting your business on a stronger footing.

Step 1 - Up-date your cash flow forecast

Depending on how extreme your sudden revenue loss is, you may need to monitor the balance between expenditure, cost reduction and whatever cash you may have in hand or can quickly secure, on a daily or weekly basis. Your up-dated cash flow will be the tool that helps you track progress, plan your recovery and anticipate challenges.

Forecasting your cash flow enables you to know if there are further revenue crises looming, for instance major bills coming up for which you may not have enough cash reserves, such as income or company tax, your GST tax, provisional tax, ACC levies, and so on.

Cash flow forecasts also enable you to plan and see when and how your business is going to return to monthly and quarterly profitability because you will be able to see the accumulating benefits of cost cutting on your bottom line.

Step 2 - Identify and review all your expenditure

• If you have a cash flow forecast, ideally it will be broken down into various cost categories and you can start assessing which of these costs can be reduced.
• Identify which costs can be directly attributed to producing and selling each product or service.
• Overheads such as rent, power, phone, and so on, can be applied to individual product or service streams on a proportional basis: if product ‘a’ takes 50% of you business effort than assign 50% of your overheads to that line as a cost.
• When calculating your costs, don’t forget to factor in the cost of your time because the time you spend one thing, you could be spending on another and you need to know your time is actually generating revenue. If you want a rough and ready measure of the cost of your time base it on how much you could readily earn in another day job? That’s what you should notionally ‘charge’ your business to use you.
• When you match all your costs against the revenue you earn for each product or service strand you will quickly see which aspects of your business are more profitable that others and which might actually be losing you money. This will enable you to be strategic and selective in your cost-cutting so that you don’t accidentally cripple the aspects of your business that will help you survive.

Step 3 - What costs can I cut immediately to free up cash, today, this week, this month, and the next 2 months without hindering my ability to generate sales?

• What’s essential? What are the luxuries?
• In an emergency cash flow situation, essential expenditure is only that spending which will directly generate sales or other revenue for you, weekly, monthly, and in the first quarter (3-month period).
• The cost and profit analysis you have completed in Step 2 will help you understand which expenditures directly generate sales for you. This is a powerful tool as you plan your way out of a revenue crisis.
• Are there some costs you could eliminate altogether, at least until your business is back in good health?
• Look at consumables first and work out ways to use these less or less frequently, use cheaper options, or don’t use them at all.
• Pay down debt, especially any high interest debt
• Stop using interest-accruing credit cards as soon as you can if you have them. Credit cards are useful, but arrange to have the balance paid off each month to avoid interest charges. The benefits of a card include being able to manage some aspects of your cash flow within 6-7 week periods from the start of a calendar month until the 20th of the next month when the credit card balance is restored from your bank account.
• Talk with your suppliers and negotiate payment plans with them – if you talk with them early about your temporary cash flow problems many will be likely to let you pay by instalments.

Step 4 - Though making money is not the same as cutting costs, the result is the same, because both strategies put cash in your hand; and ‘Cash is King’ in any business.

Cutting costs enables you to keep that cash you have; and generating quick revenue adds new money to your cash balance. Therefore, when you are undertaking the emergency cost cutting exercises outlined here, remember that you should be implementing emergency measures to bring cash in at the same time.

Cash is king. List all the ways you could generate cash quickly, and also consider:

• Are any of your other clients late in paying? Chase them up.
• How have you structured payment for your services or projects? Are you billing monthly for long or major projects on a progress payment basis? Regular progress payments will help smooth your cash flow.

Because you have assessed which of your strands are the most profitable, you will be able to put extra energy into those in the first weeks and months of a cash crisis as they will most likely bring you the fastest and strongest recovery.