Surviving a Cash-Flow Crisis
Unfortunately, cash-flow problems affect most small businesses at some point. The ready availability of cash is a major contributing factor to the survival or ruin of SMEs.
By planning ahead and making adjustments to the way you run your business, you can help reduce the risks. You can also take certain steps once you’ve already hit a cash-flow crisis, to help weather the storm and get things back on track.
Many of the same tips that apply for businesses apply for individuals too. Careful management can make the difference between just some temporary belt tightening and financial disaster.
Being proactive: preventing a cash-flow crisis
Certain basic measures can help ensure you don’t run into a crisis in the first place. However, remember that it’s not possible to predict every circumstance – even with forward planning, a few key clients delaying their payments or other factors outside your control could add up to a cash shortage.
Get a cash-flow forecast
Basic budgeting is one obvious defense. Having a cash-flow projection for each month will enable you to micromanage your finances. You can have an accountant draw up a forecast for you, or generate one yourself using a spreadsheet or free software that’s available online.
Build up padding
The key to surviving tough periods is to put a bit aside whenever times are good. Make it a routine to transfer whatever sum you can afford to a savings account, for example at the same time you pay monthly bills. Then you’ll have a buffer to fall back on when you need to.
Invoice promptly
If you send out your invoices in the last few days of the month – when most businesses have already made their payments – you may be left waiting 30 days for payment. Get into the habit of sending out invoices as soon as possible.
Once you’ve already hit a cash-flow crisis
Stronger measures are appropriate if you’re already in the midst of a cash-flow crisis. Keep calm though, and start with the least drastic measures before taking more significant or potentially irreversible ones, like letting staff go or selling important assets.
Cut costs significantly
Reducing your overheads can help prevent a cash-flow problem, or help you get out of one that has already hit. Some ways to cut costs significantly are reducing rent by moving to cheaper premises (or moving a business into your home) and downsizing staff. Employees may also be open to accepting a delay in salary payments, or even temporary salary reductions, if the alternative is likely to be job loss.
Renegotiate deals with suppliers
If you’re facing a crunch, consider trying to renegotiate payment terms with suppliers. They’re more likely to be open to this if they realise you could otherwise go out of business, in which case they’ll lose out too.
Follow up debtors
A common cause of cash-flow problems is delays in receiving payments from clients. If you’re owed money, follow up and persist until the funds reflect in your account.
Reassess your providers
By reassessing your service providers, you may be able to find cheaper deals for data, internet, business insurance, vehicle insurance and other services used by your business. Shop around to find the best deals or renegotiate with your current service providers.
Reduce your inventory
Many businesses that sell tangible products run into cash-flow problems because they have too much money tied up in inventory. To free up cash, consider selling some of your stock at a discounted price.
Sell or rent out assets
It might be possible to sell or even rent out assets like equipment, vehicles or storage space to raise some ready cash.
Raise your prices
Although you may be skeptical about increasing the price of your products or services just when you’ve hit a slump, this can be one way to improve your financial position. Consider how existing clients are likely to respond, assess competitors’ prices and, if you feel it’s reasonable, raise your prices to improve cash flow.
Adjust your payment policy
You may be able to get payment in advance from customers, especially if you offer an incentive like a small discount for early payment – for example, a 5% discount for payments made within five days of an order or sale. Also consider accepting credit card payments, if you don’t already, so that you get paid in two or three days, rather than 30 or 60.
Get credit
If you’ve run into a serious cash-flow problem, it’s time to investigate your options for securing credit. This might take the form of a traditional bank loan or, if you need cash fast, you could consider an alternative like pawning a vehicle.
With Pawn My Car, you can use a vehicle that’s in your name to secure a loan quickly and easily, with no delays or credit checks. For more information, contact us on 0861 112 866 or simply complete and submit our online application form.
