If your business’s cash flow has reduced to a dribble, you could be on the brink of disaster. After all, if you haven’t got the money to pay those you owe, operations can easily grind to a halt. The good news is that it may neither be your fault and that there are plenty of actions you can use to get things moving again when it comes to cash flow. Keep reading to find out more.
Are cash flow problems always caused by poor money management?
Many people assume that cash flow problems are due to poor money management within a company. However, this is not always the case. Instead, it is often the most successful businesses that struggle with cash flow, because of the simple reason that due to their success they end up expanding too quickly, something that puts a great strain on their resources and can mean there is not enough coming in to cover what needs to go out.
Of course, prevention is always better than cure when it comes to cash flow issues. That means whether you are planning your business’s budget, or going through an expansion, making sure you have adequate financial projections, as well as access to emergency finance, is vital. Although, if you already find yourself in a cash flow situation, the following strategies can help.
The first strategy to consider is to sell equity. This means selling off shares in your business in exchange for the money that you need. Indeed, the advantage of this is that it can happen relatively fast and so provide access to the funds required.
Although, it is worth noting that selling equity makes a better last resort than the first response. After all, when you sell equity you also give up at least some of the control of your business, something that owners can find tough, and may eventually lead their company in a direction they would not have chosen themselves.
Indeed, it is vital that you not let your need for fast cash cloud your judgment when it comes to choosing an investor to sell equity. After all, a cash flow problem may be urgent but short-term, but a new part-owner will have a significant and long-term impact on your business.
Loans and credit
Usually, a more amenable solution to a cash flow problem is to use credit or loans to bridge the gap in the short term. Indeed, if you have done your due diligence and set up a line of credit before things got to a crisis point you will have access to the money you need instantly. Also, many loans can be approved within minutes or hours these days, so this is definitely one of the faster options for when you need money quickly.
Of course, the downside of using loans or credit to make up your cash flow shortfall is that you will need to pay back much more than you have borrowed. Indeed, this is precisely how lenders make their money, and with that in mind, looking not only for fast loans or lines of credit but also ones with a reasonable interest rate is vital.
Speed up customer payments
Another way to combat cash flow problems is to increase the speed at which money is coming into your business. There are several effective ways of doing this including automating your invoicing process. The latter is particularly helpful because it means there is no delay in issuing invoices, which should also mean they get paid faster as well.
You may also want to ask your customers for a deposit on products or services upfront. Indeed, this can be effective in that you get at least some of what you are owed right away, and it also discourages customers from pulling out or canceling deals that are underway.
While you may not have heard of invoice factoring, it is another highly efficient way of getting the funds you need to ensure your business can operate. Invoice factoring is all about selling your outstanding payments to a firm that will release their value immediately, effectively allowing you to access the money that you are owed, even if your client is being slow to pay.
Of course, such a service does not come for free and the invoice factoring company will charge you a fee for doing this. However, if you are in a financial jam, this fee may well be worth paying if it keeps your business afloat in the short term.
You can also choose to liquidate any assets that you no longer need and generate some fast cash for your business. Typically, such assets will include vehicles and equipment that are not vital to your operations.
However, small business owners may also choose to liquidate more personal assets such as a luxury watch like a Rolex to keep their business afloat. Of course, to be able to do this effectively, they must source a trusted and Prominent Rolex Buyer for the trade. Indeed, by choosing a buyer well known in the luxury watch niche, they will be able to ensure the best price possible, and so the maximum amount of revenue to solve their cash flow problems.
Lease out unused space or equipment
Parallel to liquidating your assets, using any additional unused space or equipment to generate an income can help bolster your business cash flow. Indeed, this can often be preferable because it means you get to retain control of your assets, but also receive the cash you need.
Of course, to ensure this works both for you and the others involved you will need to think carefully about the logistics involved. For example, a restaurant that only cooks meals to be served in the day may be able to lease out its kitchen to a takeout service during the evening. However, they must be able to complete the other necessary functions such as cleaning, and stock check, and maintenance during the day too, otherwise things will become too complicated to be practical.
Similarly, a manufacturing plant may be able to tweak its process to ensure that all necessary work is completed by the first half of the week. Something that means they can lease their production lines out for the second half. However, by doing this they will also forfeit the opportunity to complete rush orders, or increase the volume of orders they can take, something that could affect their ability to generate revenue in the long run.
Speak to the people you owe money to
Many business owners do their very best to avoid creditors when they are struggling with a cash flow problem. The funny thing is that this is the complete opposite of what they should be doing. In fact by approaching those to whom you owe money you are much more likely to be able to negotiate more favorable payment terms.
With that in mind, if you find your cash flow has ground to a halt, be sure to speak to your creditors, both large and small, and explain your situation, while also agreeing on a new date that you will pay by. After all, they are likely to be businesses too, and a small delay in the payment of their invoices will be more appealing to them than having to go through legal and debt collection proceedings.
Cut your costs
Cost-cutting is a tactic that should be considered with caution, especially in response to cash flow problems. The reason for this is because it can cause more long-term issues than it solves, especially when it means making redundancies or lowering the quality of the product you are supplying to your customer base.
However, smaller short-term cost-cutting measures may be both more appropriate and more useful. For example, suspending overseas travels and opting for video meetings instead can save a great deal. Similarly, cutting hours rather than jobs can work to protect your long-term interests while furnishing you with the cash you need in the short term.
Host a sale
Again in the short term, a great way to raise additional funds to shore up a waning cash flow is to offer a discount on your products or services. The aim of this is to maximize your volume of sales and so ensure your revenue increases enough to cover the shortfall.
However, once again, this is not an effective long-term solution. Indeed, many business experts would argue that ensuring your charge higher prices from the get-go is a good way to prevent ever getting into this situation in the first place. After all, when it comes to cash flow issues, a cure is possible, but prevention is preferable.
While cash flow problems are often preventable, many businesses do find themselves in a situation where they struggle to pay their creditors. The good news is the tactics above can be applied to increase the flow of cash, and so ensure a business can continue to operate.