Top 5 Ways You Can Pull Your Business Out of a Cash Crunch
Running your own business can be very satisfying and fulfilling, irrespective of its size. You may have burnt the midnight oil to establish the small business, and everything seems to be just fine until one day, when your business runs out of cash. No matter how hard you try, your business just slows down to a trickle eventually. Well, you are not alone in this case. 82% of businesses have been reported to encounter poor cash management in the Australia.7 out of 10 companies agree that regular access to cash flow is crucial to maintain healthy working capital. However, 30% of these companies find it hard to keep a regular flow of cash. 20% of them report that they encounter a cash crunch situation at least once a month.
The next time your business goes through a cash crunch, do not panic. Remember that there are tons of other businesses going through the same phase, dealing with it, and getting back up with a fresh start. How do they do it? Let’s have a look at the top five strategies that can help you pull your small business out of a cash crunch like a pro.
It sounds selfish, but this is probably the easiest thing you can do when cash crunch strikes. You can’t just delay the payments of your utility bills or rents, can you? Thus, talk to your vendors and suppliers and try to negotiate an extension of the due date. This step isn’t as easy as it sounds to be. You can make this possible if you have a history of making payments on time. That is only when your vendors and suppliers will cut you a break willingly.
Make a list of the necessary expenses that you can’t compromise with. Hold off payments for some of your suppliers and vendors and use that money to take care of the unavoidable expenses. Do you have any questions regarding this tip? Let me know in the comment section below.
2. Negotiate new payment terms
Okay, now this tip will come in handy only if you are able to work on tip #1. Slow-paying customers and irregular cash flow structure are often the most common causes of cash crunch in small businesses. Thus, try to negotiate the existing payment terms if you could delay payments for a short period of time. Change the existing payment structure keeping your future cash flow system in mind. Once your new plan starts gaining momentum, you can prevent cash crunch in the future.
Say you usually spend on a net-30 basis every month. However, you still find yourself getting stuck in the same cash flow problems each month. Why don’t you try changing the structure to net-45 basis? This may give you enough room to take care of the cash crunch phase of your small business. Try this step out and see if it works out fine for you.
3. Assess your clients carefully
Closing a sale is like a victory for salespeople like you and me. But, you must remember that closing a deal will prove beneficial to your business only if it contributes to the cash flow of your business. What if you choose to work with a client for a longer time period and the client ends up paying irregularly? Thus, I would suggest everyone to start working on small projects first, examine your clients and then decide to proceed.
Ask your new clients to start with small projects first. Let’s say, you find your clients take nearly 120 days to close a $500 invoice. Then how much time would he/she take to pay for a $10,000 gig? In such cases, you may find profit in working with other clients. You can even ask your client to pay a certain amount in advance to see if he/she is fast enough when it comes to payments.
4. Pause your non-essential expenses
Not paying attention to expenses is one of the reasons that lead to irregular cash slows in small businesses. You may have paid for costly repairs for equipment, or you tried to replace a malfunctioning technology. These things consume a lot of money and often lead to a cash crunch in small businesses. Thus, you need to take a closer look at the things you are spending on each day. Prepare a budget for expenses and maintain that throughout the month.
Get rid of non-essential expenses when you find your business is in a tight spot. Reduce your monthly or weekly inventory order when your sales are down. You can even try dropping recurring subscription services. There are several options you can check out to keep your expenses in check. Remember, the more you trim the expenses, the more money you can put back into your cash flow.
5. Complete your projects on time
Many small businesses often get into the trap of cash crunch because of too many unfinished projects. You can’t even ask for the money unless the projects are completed, right? Thus, motivate your team to work hard and get the assignments done as soon as possible. If required, ask your team to work 24*7 and complete the projects. Make it a point to submit as many invoices as possible, so that you could ask for the payments on time.
Cash crunch occurs when you have little money coming in compared to the money that’s going out. Take your deadlines into account while you are planning your weekly schedule. Try to bring as many projects as possible to the finish line without compromising with the quality of the projects. Complete the projects quickly to send the invoice faster.
These 5 tips can help you deal with the cash crunch of your small business. It is not easy to get out of such a situation. Just stay calm, implement any of the tips as mentioned above and see the difference in your cash flow. Know your mistakes and try working on them once you are out of the crisis.
Robert Smith is a part-time business consultant at a reputed firm in the Australia. He also provides finance case study solutions to students at MyAssignmenthelp.com. Robert likes to travel during weekends.