Twelve Sure-fire Ways to Survive a Cash Flow Shortfall
By Dan Boudreau
Most businesses are short of cash at some point. For some, it’s a seasonal issue, while for others the problem arises when the owner attempts to grow the business. Sometimes unforeseen expenses or poor economic conditions tilt an enterprise into a tailspin.
Cash is the lifeblood of a business and shortages are never fun. Shortfalls surface in the form of late bill payments, missed tax deadlines, or delaying of repairs and maintenance. More sinister indicators are: failing to make payroll, falling behind on payments, or having equipment repossessed. Smart owners keep an eye on the cash situation at all times and mitigate issues early and decisively.
Here are twelve ways to survive a cash flow crunch.
1. Determine why you’re short of cash. The first step in solving the problem is to understand what’s causing it. Are sales down or expenses up? Have recent purchases depleted cash reserves? Is it seasonal, or a one-time occurrence?
2. Communicate with your creditors. The folks you owe money to don’t like surprises. Once you have your head wrapped around the issues, talk to your creditors and be clear about what you can and cannot do. Make only promises you can keep.
3. Delay payments. If a bank loan is draining your resources, and where the cash flow shortfall is temporary, explore whether you might be able to make interest-only payments for a while. This might buy you the time and headroom to weather the storm.
4. Sell unneeded assets. This might be a good time to unload that extra equipment that’s currently collecting dust in the back forty. Identify unused items that might be of value to others and put them up for sale.
5. Increase your prices. Sometimes a skinny bank account is the result of low pricing. If your money problems arise from undervaluing your goods, and if the market will bear it, consider raising your prices.
6. Add new products or services. Sometimes a new revenue stream or product line is the path to a healthier balance sheet. Are there products or services you’re currently not offering, but which your customers might want?
7. Drop the losers. Maybe it’s time to thin out your offering by discontinuing low-margin or unprofitable goods.
8. Cut your owner’s drawings. If you have the ability to do so, you can temporarily ease pressure on business finances by reducing the amount you pay yourself.
9. Trim unnecessary costs. Scan your indirect and direct expenses for anything that can be cut, even if temporarily.
10. Collect money owed to you. If some of your receivables are looking long in the tooth, it’s probably time to collect your dues.
11. Work more hours. For most entrepreneurs, one convenient bargaining chip is to sacrifice your own time. While this can be a trap that leads to burnout, it can also be the extra mile that keeps your business alive.
12. Layoff or reduce staff hours. Nobody likes to be the bad guy, but unless there’s an awfully compelling reason for doing so, it’s crazy to carry unneeded staff while your business is on the rails.
Early action and clear communication with creditors are the main ingredients for successfully navigating a cash flow crunch.