Surviving a Cash Flow Crisis
If your business has cash flow problems then it is important to have a strategic plan in place to address the said problem. If you don’t have any plan in place then you could find yourself in a position where you may struggle to meet your expenses due to a shortage of funds. In order to prevent a cash-flow shortage, you need to take action ahead of time. Here are some steps which you can take to survive or even prevent a cash flow shortage. Keep in mind that more than 80 percent of businesses fail due to a cash flow crisis, so following some of the tips mentioned below may help you in protecting your business.
Improve Your Profits by Making Changes to Your Business Plan
Review your existing operations, revenue streams, expenses, and overall business plan. Try to determine the reasons behind your cash flow problems. Once you have identified the reasons as to why you are dealing with a cash flow crisis, you can then make the necessary decisions to address them. In most cases, you will either be required to make fundamental changes to your existing business plan or develop a new business plan. Some of those changes could outsource different processes e.g. accounting services, HR services, IT services, etc.
Negotiate with Vendors
Another way in which you can manage your cash flow is by reducing the amount of cash flowing out of your business. This can be done by negotiating good discounts and favorable credit terms with your vendors. This strategy will help you in improving your working capital.
Improve Recovery from Customers
The faster you have money flowing into your bank accounts, the quicker your cash flow problems will go away. One way to increase the flow of cash into your business is by accelerating the recovery of your receivables. You can do this by requesting partial payment upfront, accepting preorders, sending invoices to customers faster, and following up on due invoices. Make sure to provide your clients with a variety of different payments options such as payments through debit and credit cards, payment through electronic transfers, mobile payment, etc. Remember, every penny counts when you’re in a cash flow crisis.
During a cash flow crisis, you will have to reduce your company’s expenses. Only incur the expenses that are necessary for running your business operations. In simple words, review your expenses to identify those expenses that are not necessary for keeping your business running. This strategy will help you in improving your cash flow immediately.
Get Rid of Non-Essential Assets
You can sell your non-essential assets to raise some funds to meet your working capital needs. While this is just a temporary solution, it will still help you in improving your cash flow. This is one of the quickest ways to get cash into your business.
Consider raising funds by selling some of the portions of equity of your company to a new business partner. Don’t forget to research the person or entity you are getting into business with.
You can manage your cash shortage by borrowing money from family and friends, banks or financial institutions. Just, make sure one thing is that the cost of borrowing money (interest rate) is the one that you can easily manage.
When your business is in a cash flow crisis then you just can’t stand by and watch your business sink. You need to put a planned-out approach into effect or take immediate actions to address your cash flow problems. Use the above strategies to keep your business running in difficult times.