Managing a Cash Flow Crisis

Cash flow shortages are a common cause of small business failure. Even with careful management (as we’ve discussed in the previous posts for this series), an unforeseen event can throw a wrench into your business finances. So, what can you do when a cash flow crisis hits? In this post, we’ll look at some strategies for managing an event like this.

Accelerate Receivables

Since a cash flow shortage means you have more money going out than coming in, one thing you can do immediately is to start working to reverse that flow. Speeding up receivables is a good place to start since there are various ways to control how and when you get paid. 

You can, for example, ask new customers for a deposit or partial payment up-front instead of billing them once they’ve received their product or service. You can also send invoices earlier and/or more frequently (the latter is especially valuable if you’re billing for services). Check your invoices for past due accounts, and make sure those get paid. Finally, make it easy for clients to pay by offering additional methods of payment (mobile or electronic payments, for example).

Negotiate Payables

In contrast, you might want to look at delaying payments to your own suppliers or vendors. If you have a good long-term working relationship with them, be honest about your cash flow issues and see if you can negotiate installments or longer due dates for your payments. It’s likely that they will be flexible, especially if your past payments have been sent on time.

Cut Expenses and Sell Non-Essential Assets

A cash flow crisis is a perfect time to scrutinize every cent leaving your bank account (although hopefully, you’ve been watching your expenses all along). You might have some hard decisions to make about what you can and can’t afford to keep and only spend on what will keep your business running and generate revenue. 

Additionally, if you really find yourself in a bind, you can sell some non-essential business assets to raise some quick cash. Needless to say, this is only a temporary fix since these assets can only be sold once. But some income is better than none, and this measure can help you get back on even footing.

Borrow

Finally, you can look at some borrowing options. This should be the last item on your emergency list because taking out a loan or a credit card advance does have some drawbacks. You’ll need to be aware of interest rates and repayment requirements and decide whether this is truly a viable solution or if it will cause larger problems down the road because you’ve taken on even more debt.

And remember that there are professionals out there who can help! If you feel like your business is in trouble and would like some help with getting out of a cash flow crisis, I’d be happy to set up a consultation to get your finances back on track.