Future-Proofing Your Business Through Resilient Cash Flow Practices and Workforce Planning
When the economy is uncertain, accurate cash flow forecasting and workforce planning are even more critical in maintaining business resilience.
We live in a competitive world and a competitive economy. And even when that economy is booming, businesses need thoughtful financial planning to take advantage of growth opportunities and stay ahead of their competitors. But when the economy is uncertain, accurate cash flow forecasting and workforce planning are even more critical to maintaining business resilience.
These efforts protect your organization's financial future, and more importantly, they protect your employees. Increasingly, HR leaders, not just finance leaders, face pressure to ensure that businesses follow sound cash flow practices that ultimately build employee trust and morale.
Cash flow stability is a cornerstone of organizational resilience
Cash flow, the measurement of money flowing in and out of a company, is usually considered part of the operational or financial picture. But in the big picture, cash flow stability is a critical identifier of business health. That degree of health deeply impacts your employees' trust in the organization and impacts recruiting, retention, productivity and engagement.
Although a business may seem profitable when revenue and expenses are totaled at year-end, if it doesn't have cash flow stability or a positive cash flow when needed, it may not be able to pay expenses like rent, employee salaries or supplier invoices on a timely basis, which can send all the wrong signals.
Sometimes, a lack of cash flow isn't within a leader's control: macroeconomic headwinds, supply chain disruptions, natural disasters and geopolitical instability can suddenly and negatively impact money on hand, and if these factors are prolonged, they can and do result in many businesses shutting down. For those that can weather the storm, these pressures can still create financial stress if they drive a business to borrow funds at a high interest rate or sell an asset at a suboptimal price.
Regardless of the cause, when cash flow decreases, companies hold back on spending in ways that undoubtedly impact the workforce. Budget and hiring freezes are common, but not without downsides. Departmental budget freezes can create uncertainty, hiring freezes may affect team productivity and morale, and delays in bonuses or merit pay increases can impact employee engagement.
It can take years to build a business, and unfortunately, even a successful business can face challenges in a rough macro environment, and in weeks or months, that business can regress or even fail. That is why it's critical to plan for organizational resilience.
Strategies for creating business resilience through strong financial practices
It's impossible to predict every disruptive event. However, you can anticipate that disruptive events will occur (it's a matter of when, not if) and you can try to mentally and financially prepare for them.
Over the last few years, we've seen an ebb and flow in the level of confidence in the economy, and many business leaders have felt we were on the edge of a financial recession. While that has not happened yet, now is the time for workforce planning and financial scenario planning to determine what steps to take in the event of an economic downturn.
Determine the level of stability needed
All organizations need some degree of stability to attract talent. For some, such as a tech startup, stability is perhaps not as great a priority - employees at startups are often focused on upside opportunity and are willing to take on a correspondingly high risk. Or for a business that can rely on less-experienced talent, including college-aged or hourly workers, stability may be helpful but not mission-critical.
But there is a broad swath of companies that depend on a more experienced workforce, but that don't offer that significant upside, and it is this type of organization that should lean into their stability. Consider the type of employee you're trying to attract: experienced talent that continues to learn and develop through different economic and other business cycles. The trade back to that employee who ties their long-term career to the company's success is the opportunity to grow and learn, and for that you need financial stability.
Use workforce planning and cash flow forecasting to save funds for a rainy day
The rule of thumb for small businesses used to be to set aside cash for three to six months of expenses. Larger and more established companies have multiple ways to manage cash flow, including establishing a line of credit or borrowing from a bank at a reasonable interest rate in advance and saving those funds until they're needed.
Large multinational companies often have a credit rating that allows them to borrow from other large companies at favorable interest rates, sometimes for one or two days to several months or more. Their board of directors often requires these companies to demonstrate preparedness for such scenarios.
Stress-test your plan
In certain industries, regulators have large companies examine their workforce planning and cash flow forecasting to simulate the realistic outcome that an event, such as a recession, would have on an organization.
Small businesses can also perform this exercise. It's about estimating and understanding what happens to sales or revenue during an economic crisis of a few quarters, or perhaps for a longer period of time.
The stress test allows you to anticipate and plan accordingly. Whether it's for a small or large business, the goal is not to completely eliminate risk but to reasonably reduce it.
Communicate transparently
Authentic communication creates a pillar of trust between the company and employees and sets the foundation for how the organization moves forward even after a crisis is resolved. During financial uncertainty, leaders may not want to, or may not be able to, share all of the details of the company's actions.
Still, leaders can acknowledge that a situation is challenging and share how the organization has developed resilience for that situation.
Regular updates and town hall-style communications from leaders that provide consistent messaging and acknowledge employee concerns help sustain trust and morale.
Collaborate between HR and finance departments
Future-proofing a business relies on input from multiple departments. HR provides workforce planning aspects, including attracting and engaging employees, and ties it to financial perspectives of compensation and benefits. Those monetary responsibilities may require the finance department to establish a cash reserve or contingency fund accessible for critical payroll and benefit expenses.
Together, HR and finance can establish the financial stability needed to attract and retain talent. When employees know their healthcare and retirement benefits are secure, it signals the company's strength. That becomes a powerful attraction and retention tool.
Learn from the past
Small businesses, especially, have fewer backstops to lean on in a crisis, but the ones that make it through tend to come out stronger. As you look to the future, consider the survival strategies that were most effective and how to use them again when needed.
Resilient cash flow practices do more than reflect a company's financial health. They help shape employee confidence, retention and productivity. With strategic actions that integrate cash flow resilience into workforce planning, companies of all sizes can protect employee trust during economic uncertainty. Moreover, these practices create a competitive advantage in talent retention and organizational reputation.
Learn more
The right workforce management (WFM) solution can help boost customer service and revenue, reduce operational costs, improve employee productivity and engagement, and more. Get our guide, Workforce management buyer's guide: Choosing the right solution for your organization.
