Over the years, this column has touched on the necessity of looking ahead to make sure that cash coming into a business stays ahead of the requirements for payments. Now that many regions of the country are experiencing some of those “bad” times in the housing market, it would seem to be a good time to look at managing cash flow.

In the kitchen and bath design and remodeling business, we are normally dealing with a few fairly significant projects at any one time, and probably have business lined up for the next few months. After that, we are counting on a flow of new customers to fill out our production schedule.

In such a situation, business can come to a screeching halt if that flow of customers doesn’t materialize. This month, we’ll take a look at three important aspects of dealing with changes to business activity: being prepared, anticipating the changes and dealing with the changed level of activity.

Be Prepared

At all times, but particularly when times are good and business and cash flow are strong, it’s important that income be reinvested into the business. It can be tempting to ease up on payroll management, spend money on marginally necessary expenses and/or withdraw profits when cash seems to be rolling in.

But when cash flow is strong, you should adopt a strategy of using the money to strengthen your business for the leaner times by replacing equipment that is beginning to cost more to maintain than it’s worth. This should include vehicles, tools, computers, displays, etc. When those lean times show up, it’s nice not to be forced into replacing these assets while you’re trying to hold down expenditures.

Another key area of investment is in your marketing efforts. These should be kept up even when it seems like you don’t really need any more business. Without getting into a long discourse on marketing philosophy, feedback from our clients would indicate that exposure to our marketing efforts over a long period of time is one of the things that drew them to us. It’s not just media advertising that should be maintained, but all of the little things such as cultivating your referral base and posting job signs, for example.

Another aspect of being prepared is to have a “rainy day” fund set aside to provide funding in an emergency. This should take two forms, the first being a bank line of credit. This is always easier to arrange when times are good and banks have somewhat more relaxed lending requirements.