Cash flow problems are one of the top reasons small businesses fail. A cash flow shortage occurs when your business has more money going out than coming in. You may have trouble paying bills, payroll expenses, and other operating costs during a cash flow shortage. If this goes on long enough, you can find yourself in a cash flow crisis. Having a plan can prevent a crisis and empower you to take action to save your business. Here are our top 5 tips for surviving a cash flow crisis.
1. Prepare Your Plan
Without a clear plan, you will not get out of a cash flow crisis. Your first step is to get a detailed overview of your finances. Establish a system of receiving accurate and up-to-date financial statements like income statements, cash flow statements, and balance sheets. You need to be on the financial pulse of your company at all times. This kind of moment-by-moment information can help you form and adjust your plan as you move forward.
2. Accelerate Receivables
The quicker you can get money flowing into your business, the better your chance of surviving a cash flow crisis. How you accelerate your receivables will look different based on the kind of business you operate, but some ideas include the following:
- Get a deposit or partial payment on new orders. This may not fly with long-standing customers, but you can ask for a partial payment up-front instead of waiting to bill after services have been rendered. This will get cash flowing to you much quicker.
- Send your invoices early. Invoice as soon as possible. The larger the gap between services rendered or goods delivered and payment, the more time you spend in the red on that invoice. If you invoice faster, you will get paid faster.
- Collect on past due accounts. Look through your billing records and determine which accounts are past due. Start making attempts to collect these invoices. You can offer partial payments or payment plans to encourage at least some payment. Every penny counts in a cash flow crisis.
- Offer multiple methods of payment. If you make it easy for clients to pay you, you stand a better chance of getting your money. Offering credit card, mobile, or electronic payment options can help improve the timeline in which you receive payment.
3. Negotiate Payables
Reducing, or even delaying, your business expenses during a cash flow crisis can make a difference in your bottom line. Negotiate with vendors to reduce or pause payments until you can get through this crisis. Many vendors will work with you, especially if you have been a loyal customer. Your utility providers may also be flexible enough to work out reduced payments or a pay freeze for a short time.
4. Cut Expenses
While you should always be critical of the money you spend for your business, during a cash flow crisis, you must evaluate your expenses with intense scrutiny. You will need to cut any cost that is not integral to your business’s operation or revenue generation, at least for now.
5. Sell Any Non-Essential Assets
You can also sell non-essential business assets in a pinch to generate temporary cash flow. Since you can only sell these items once, this is a temporary fix. But when every cent counts, this can be a quick and effective way to generate income when you are desperate for cash to flow your way.
The best way to prepare for a cash flow crisis is to actively prevent one through your standard procedures. Take the time to monitor key cash flow problem indicators, forecast your cash flow, and re-evaluate your business plan regularly. If you are struggling with cash flow issues, Halter CPA can help. We can offer personalized service and tailored advice to help make your business profitable again.