Strategies to Make it Through a Business Cash Flow Crisis

If there is one thing you as a business owner don't want to deal with, it is a cash flow crisis. Occurring when your business has more money going out than it does coming in, it can result in not being able to cover your company's payroll or pay for other operating expenses. In fact, over 80% of small businesses fail due to cash flow problems. If you want your business to continue thriving, speak to your CPA about implementing the following strategies to survive a cash flow crisis.

Figure Out Why it Happened

When you talk to your CPA, figure out how the cash flow crisis happened in the first place. To do so, you will need to examine your business plan so that you can find ways to improve your company's profit margins. If you don't do this, chances are the same problems will occur again and again.

As you examine your business plan, focus on such areas as clients who should be let go because they are costing your company too much money, which services your business offers that generate the most profit, and unnecessary expenses that could be eliminated to save money.

Speed Up Your Receivables

In many businesses, your CPA will tell you that speeding up your receivables will be one of the quickest ways to improve your company's cash flow. Fortunately, there are many things you can do immediately on this front.

First, don't be afraid to ask your new customers for a deposit or partial payment for the goods or services you provide. Next, pay more attention to your past due accounts, and start contacting these clients to get full or partial payment as soon as possible.

Other strategies you can implement include sending out invoices earlier, sending them out more frequently, and making it easier for your clients to pay by offering credit card payment options or even mobile payment options.

Negotiate with Your Vendors

While your CPA will recommend you speed up your receivables, they will also suggest you negotiate with your vendors regarding your company's payables. Remember, your cash flow crisis happened not just due to not enough money coming in, but also because you were sending more money out to your vendors.

Even if some vendors refuse to be flexible, chances are ones with whom you have done business for years will work with you to either delay payments or renegotiate payment terms. Also, contact your utility providers, be honest about your situation, and see if they will also work with you to delay payments.

Examine Your Borrowing Options

While you can borrow money and likely get immediate cash back into your business, don't simply jump into this option without thinking about it very carefully and discussing it with your CPA. Generally, it is best to consider and try many other strategies before you choose to borrow, since this could create more financial headaches later on.

If you do decide to borrow, a business loan or credit card advance will be your quickest option. However, be aware of the interest rates and repayment terms of these loans before you move forward.

Sell Equity in Your Company

If you don't mind giving up complete ownership of your business, you may be able to solve your cash flow crisis by selling equity in your company. Should you decide to raise investor capital, talk this over in great detail with your CPA. If you don't, you could make rash decisions regarding who you decide to go into business with, which could make a bad situation much worse. Since you will be giving investors a say in your company, it is usually best to exhaust most other options before going down this path.

Slash Your Expenses

Within reason, try to slash your company's expenses as much as possible during a cash flow crisis. This is where your CPA can be of great help, since they can work with you to determine which expenses are necessary and which are not. Ultimately, you should develop a strategy that has you spending money only on expenses that keep your company operating and generating revenue.

Sell Your Company's Non-Essential Assets

When you are in a real bind for cash, selling off any and all non-essential assets can be a quick way to get cash in your hand. Whether it is various types of equipment your business uses rarely if ever or other assets that are not necessary on a daily basis to keep your business operating, sell anything and everything you can as a temporary way to ease your cash flow concerns.

Lease Rather than Buy

To help improve your cash flow, consider leasing equipment and vehicles rather than buying them outright. When you do, you will not only be making smaller payments that will help improve your cash flow, but also creating a tax write-off, since lease payments will be a business expense.

Increase Your Prices

Though you as a business owner may be very hesitant to raise prices on your products or services, this can often be an effective way to ease cash flow problems. If your business has an excellent reputation and has many loyal customers, chances are they will accept a modest price increase and continue to do business with you for many more years.

Add New Products or Services

Once you begin looking at your company's revenue streams, you may realize you can add new products or services to your business as a way to increase your cash flow. For example, you may have unused space in your business that could be leased out, or perhaps you may be able to offer new services such as installation or maintenance that will cost you next to nothing.

Since you worked hard to make your business successful, don't let a cash flow crisis result in you closing your doors for good. Instead, talk over these strategies with your CPA. Before you know it, your cash flow problems will be a thing of the past.