It happens to almost every small business at one point or another, a cash crunch. Bills are coming faster than revenues, but to increase revenues, it is necessary to spend more. How a small business owner manages cash flows during a crunch can often decide whether a business lives or dies.
Here is what to do:
- Communicate – Let everyone know who has a stake in your business – particularly creditors and suppliers. Hiding your financial difficulties will only cause more problems in the long run. Most creditors and suppliers will work with you.
- Negotiate a Payment Plan – Talk with your creditors, suppliers and landlords to see if you can pay in payments or renegotiate your lease to more favorable terms. With many suppliers you might be able to set up a 90-day trade credit to help with cash flow.
- Consider Asking Employees For Their Input – Total Quality Management theory suggests that you ask for employee input. Have a brainstorming session with employees to discuss ways to save money or increase revenues. They may have ideas that you have not thought about.
- Consider Refocusing Your Business – For example, are your hours not working for your target market? Maybe by opening up two hours later and then staying open one hour longer, your business could boost profits and reduce costs. Focus on your most profitable customers–rememberi that 20% of your customers account for 80% of your profits.
Here is what not to do!:
- Dodge Creditors – By avoiding them you can only make it worse.
- Give Into the Debt Cycle – Borrowing from one lending source to pay another lending source only compounds your problem. Work out payment plans and resist the urge to sell your company’s equipment for some fast cash.
To Avoid Cash Shortages in the Future:
- Call Your CPA – Give us a call. We can help you plan your cash flow needs so you reduce the stress of cash management.
- Stay on Top of Bills – Once you get your affairs together, make sure to pay your bills on time. Good credit could mean easy access to financing in the future.