How Your Business Can Survive A Cash Flow Crisis
According to this article, 82% of the businesses that fail do so because of a cash flow crisis. It’s a scary figure, right?
A cash flow crisis is when a business has more money going out than what it does coming in, or when the flow of cash coming in stops altogether.
How can this happen?
There are many reasons. It might be that the buyers market has changed, as the product or service that the business provides might be seen as outdated or irrelevant in the face of new trends. On the other hand, seasonal demand could be an issue, especially for those businesses that do better at certain times of the year than others because of the products they sell.
These are just a couple of examples, but to get a bigger picture as to why a cash flow problem might happen, you can see some of the other causes here.
Of course, a wise and savvy business owner will take the appropriate steps to reduce the risks of a cash flow problem happening in the first place. They will also make savings to ensure there is an emergency fund available during periods of financial scarcity. However, mistakes do happen. Customers do change. And there could be all kinds of reasons beyond the business owner’s control that could instigate a cash flow problem, so we can’t place the blame on one person alone.
Should you be a business owner, and if you are concerned about a current or potential cash flow crisis, then you will understandably want to know what to do in such a situation. Thankfully, it is possible to save your business from an untimely demise. Below are some suggestions that we hope you find useful.
#1: Take stock of what has gone wrong
When your business is in trouble, you should use job costing to assess your losses and profits. By using the information in the linked article, you will be able to determine any weaknesses in your operation and then have the impetus to make the necessary changes to protect your business from further financial trouble. It might be that you need to change your pricing strategies, for example, or you might want to manage your expenses better.
After taking action, you might still face a few financial difficulties in the short-term, but if you can keep your doors open, you should start to see a change in fortune when you head into the long-term.
#2: Send out those invoices
The sooner you send out your invoices, the sooner you will get paid, so get in touch with your clients and customers and stress to them the importance of quick payments. You might want to make it easier for them to pay you too, so give them the option of using Paypal to ensure the money gets into your bank account quicker, and use a variety of other online payment options to reduce the time it takes for money to hit your accounts.
It might be that your business profits will soon start to pick up again after taking action in this way, and for the future, you might want to invoice more frequently to ensure you aren’t hit with another cash flow crisis.
#3: Reduce the amount of cash flowing from your business
For starters, stop spending money on those things that aren’t essential for the running of your business. So, stop paying for office lunches and coffees for your staff. Cancel those subscriptions that don’t matter to your business. Try to negotiate better deals with your suppliers.
Do a price comparison search of phone, insurance, and utility providers, and make the switch if you find any cheaper deals. And in regard to this last point, if you can’t get out of any contracts, try to arrange a payment plan with the people you regularly pay money to. As soon as you reduce the amount of cash flowing from your business, you will protect yourself from further damage.
So, using the examples we have given, and by scouring your bank statements and receipts to assess other expenses, make the necessary changes to reduce or eliminate your outgoings.
#4: Speak to your accountant
Assuming you have an accountant, get in touch with them and ask for their professional advice. They should be able to advise you on your financial situation and will suggest courses of action to you to minimize the threat to your business.
If you don’t have an accountant, then despite the extra expense imposed upon your business, you might still want to consider hiring somebody. You will then have the benefit of experienced advice, both in the short term and in the long term when you’re trying to improve your financial situation.
#5: Find ways to generate an extra income
The more money you can generate into your business, the better, so look for ways to bring that in. On the one hand, you could make an active income by taking on extra work. With more clients on your books, you will slowly start to rise out of your financial doldrums.
You might also want to consider ways to make a passive income, as you won’t have to run yourself into the ground through overwork this way. So, if you own your own business property, you might want to rent out one or more of your rooms to your local community, perhaps for group meetings or educational classes.
You might also rent out parts of your premises to other businesses if they are in need of office or storage space.
And you might consider the same if you own the land that your business property is on. It could be used for local community events, for example, or you could make money from local telecommunications companies if they need room for their cell towers. Be sure to negotiate reasonable cell tower lease rates if you’re following this latter option to ensure you aren’t short-changed.
These are just some of the ways in which you can generate an extra income for your business, but get together with your employees, investors, and business partners, and come up with other solutions together.
#6: Consider taking out a loan
We say ‘consider,’ as if you already steeped in debt, then a loan could be the last thing you want to think about. After all, you don’t want to create further financial difficulties for yourself. But if you aren’t already buried low by debt, research the loan providers in your area and look for those that offer the better interest rates. You will then have that quick fix to your cash flow problem, though be sure to consider the other suggestions on this list to ensure you don’t fall prey to any further financial problems.
If you are currently in debt, it is only worth considering a loan company if you can consolidate your debts into one easier to make monthly payment, or if you can renegotiate the interest rate on your debt. You will then have less of a financial headache when trying to pay them off.
#7: Speak to your investors
Your investors will want your business to succeed as much as you do, as they won’t stand to gain anything if your business goes under. So, speak to them, and ask them if they would be willing to invest more money into saving your business.
Of course, they might be hesitant, especially if they think their money might be wasted, but if you can prove to them that you will make a concerted effort to improve your financial situation in the long term, they might be willing to invest that extra money.
#8: Make a concerted effort with your marketing
You should never stop marketing your business, of course, but if you have a shortage of customers or clients, then now is the time to make more of an effort with this one facet of your to-do list.
Of course, you probably wouldn’t have the financial resources to splash out on a major marketing campaign, but this is okay, as there are plenty of ways in which you can market your business for free.
Use the ideas in the linked article, and be sure to get in touch with those people who have previously used your business as well as trying to reach any new customers or clients. It might take time, but after a marketing push, that cash flow should pick up again.
#9: Sell any non-essential assets
This is only a temporary fix, but it will get you out of a jam. So, if there is anything that your business doesn’t need, be it an old computer, unused office furniture, or anything else that no longer has a use in your business, sell it on.
You can do this through online classifieds, Facebook, and a good-old fashioned-sale on your business premises.
If your business is going through a cash-flow problem, don’t assume failure is the only inevitability. There are ways to manage the issue, and the ideas we have presented here are but a few of them. Heed what we have said, and then commit to further research to protect your business from further financial harm.
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