Every business has its ups and downs, and managing cash flow is one of the most common challenges small business owners face. A cash flow crisis can be triggered by any number of factors, from a shortfall in sales or late-paying customers to higher-than-anticipated expenses. Regardless of the reason, the resulting inability to cover day-to-day expenses can put the future of your business at risk. In fact, a study by the U.S. Bank reported that 82% of business failures are attributed to poor cash flow management.
If your small business is experiencing a serious cash shortfall, these seven strategies can help get your finances back on track:
1 – Slow down payments.
The longer you can wait to pay your business bills without being late or in breach of an agreement, the longer you will keep the cash in your business. While you want to avoid putting your relationships with creditors and suppliers at risk, strategically delaying some of your payments is a viable option during a cash flow crunch. Schedule payments for your recurring bills and don’t pay them until they are due. If you have a history of paying on time, some vendors may be willing to negotiate an extension of a few days or weeks. Now is also a good time to review agreements for services such as phone and Internet and ask about lowering your payments. If your vendors are open to allowing you to delay payments in the short-term, consider having a discussion about renegotiating your payment structure for the long-term.
2 – Put a freeze on non-essential spending.
When you find yourself in a tight spot, examine your expenses and press “pause” on anything but the essentials. If you haven’t done this recently, you’re likely to discover costs that have crept into your budget unnoticed. Look at areas like office supplies where you can cut purchases to a minimum, and eliminate unnecessary expenditures such as media subscriptions or organization memberships. The more you trim, the more money you can put back into your cash flow.
3 – Increase prices.
This obvious strategy is often the most difficult step for small business owners to take. They typically worry that higher prices will scare off customers and result in lost sales. While this is always a possibility, raising prices strategically can help stabilize your cash flow. Examine how much you are spending on supplies and inventory and compare that to what you are charging. If it has it been awhile since you have increased prices, you may be losing out when compared to what competitors are charging. The key is to find a price point that reflects the value of what you sell and helps boost your cash flow without reducing sales.
4 – Adjust payment terms.
Finding yourself short on cash can be frustrating, especially when you have outstanding receivables that you’re waiting on. When you need a quick infusion of cash, offer a discount to motivate late-paying customers. If your business model is based on invoicing to get paid for goods or services, it may be time for a change. Consider establishing new terms for getting paid in a shorter time frame. For instance, allowing 30-day terms often results in getting paid in 45 or 60 days. Shorten your terms to five to 10 days and make sure you invoice immediately. You might also consider collecting full or partial payments upfront.
5 – Reduce inventory.
Having too much stock or too much cash tied up in slow-moving inventory can have a negative impact on cash flow. If your small business needs to keep inventory on hand, review your records to see if there are items that could be reduced or ordered less frequently. If sales are down, you could consider reducing your weekly or monthly inventory order. If outdated or discontinued inventory is sitting on the shelves, cut your losses, sell it at a discount, and reclaim what cash you can.
6 – Explore financing options.
When you hit a rough patch and need working capital, small business financing can be a smart short-term solution. Whether you need to meet payroll, keep the utilities running, or pay your lease or mortgage, working capital financing can help you cover shortages and even out your cash flow. Summit Financial Resources offers working capital loans for small to medium-sized businesses that involve using your accounts receivable and other assets as collateral. We can mix and match from a variety of flexible financing options, including invoice factoring, asset-based lending, inventory lending, and equipment financing.
We are not regulated like a bank, so we can respond quickly to the changing needs of your business and expand your cash flow in a matter of days or weeks, not months. When you work with Summit Financial Resources, you’re partnering with a realistic lender you can count on to be in your corner when times get tough.
7 – Monitor cash flow.
Once you have successfully tackled the current setback, you will need to turn your attention to avoiding similar problems in the future. Performing a regular cash flow analysis lets you track the flow of funds in and out of your business, making it easier for you to identify potential trouble spots. Develop the habit of examining your finances at least monthly so you will know where you stand and can address small issues before they become big headaches.
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Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.