Business is not only getting the sales flow but also making sure money is still coming in and going out. Eventually, even with a healthy turnover rate, the expenses will surpass the cash flow. This stage is what is referred to, in most cases, as the cash-flow crunch.
If it is imminent that bills, wages and daily tasks need to be met, but the company is running out of money, this may be a time of tension. However, it is still possible to remain flexible during this time. With so much to think about, here are some tips to help you stay on top of your cash.
1. Review and Focus on What’s Essential
One of the first things you should do when cash is tight is examine your expenses. Identify the essential costs and postpone the rest. You need to be strategic, not ruthless; it is important to keep your operations running but cut non-urgent spending.
According to a Harvard Business Review post, getting rid of unnecessary costs at an early stage can prevent more severe issues later. The main expenses that should be a priority are rent, payroll, and supplier payments.
2. Speed Up the Money Coming In
Clearly, if people take longer to pay you than you do to pay others, the process slows down. The logical solution is to tighten up your payment process. Rather than waiting until the end of the month, send invoices out straight away. Consider offering small discounts for early payment to incentivise recipients to comply.
According to the U.S. Chamber of Commerce, slow payments specifically cause cash flow issues for approximately 64 per cent of small companies. You can use tools like QuickBooks or Xero to automate the sending of invoices and reminders, eliminating the need for manual tracking.
3. Talk to Your Vendors About Better Terms
As a rule, your suppliers do not want you to fail; they want you to succeed, as you will continue buying from them. Consider reaching out to suppliers to ask for better terms. For instance, you could ask for an extended payment deadline, request to make partial payments, or ask for a discount when making a bulk order.
The National Federation of Independent Business observed that strong supplier relationships help ensure a business remains financially stable. In this case, your candour can help earn their trust, as most of them will value your honesty.
4. Use Short-Term Financing When Needed
However, as wonderful as it is to plan, you may still need a little extra help. This is where short-term financing can help you survive slow months. Business credit lines, small loans, invoice factoring, and other such financing solutions can cover your liquidity gaps.
According to McKinsey & Company research, businesses that use credit wisely tend to recover from liquidity issues much faster. The point is not to accumulate massive debts but to use financial instruments for a short period to survive the cash flow insufficiency.
5. Keep a Close Eye on Cash Flow Forecasts
Taking proactive measures to address a liquidity crunch is the most effective strategy. That means predicting any potential shortfalls ahead of time. Having a cash flow forecast in place allows you to closely monitor your weekly income and expenses.
According to the Association for Financial Professionals, 7 out of 10 companies that engage in reliable cash flow forecasting can steer clear of serious liquidity issues. All it takes is a smarter reaction, like holding off on a purchase or getting a short-term loan secured before it’s mission-critical to have the funds.
Stay Steady, Not Stuck
Financial stability is not about being lucky; it is about being prepared and alert. If your company is adaptable and responsive, it can survive and thrive during tough times.
