If you are managing a small business, you’re highly vulnerable during a crisis. You’ll likely be operating with limited resources. What’s more, you may not be ready for a drastic dip in revenue.
Despite your best-laid plans and good intentions, there may come a time when your small business will run into a cash crunch. When this happens, you need to act decisively and quickly. This important piece of business advice will help you avoid any potential financial calamity and bounce back as soon as you can.
Here are a few suggestions to help you weather a cash shortfall:
Manage Your Credit Cards
Many credit cards provide a cash advance credit limit that’s separate (and often lower) than the overall credit limit. Allot time to track the credit limits and balances versus overall purchases separately.
Create a simple spreadsheet manually or using software on your computer. Then, update this as the bills pour in. When the business situation gets tight, your goal is to charge whatever expenses you could to credit cards with an available merchandise credit, but no available credit for a cash advance.
During a cash flow dilemma, you’ll want to make the most of your available cash advances, as they’re almost the same as cash.
Another credit card management tip is to use your business credit cards strictly for business. Don’t use them to pay for personal expenses, such as mortgage payments, home insurance coverage, entertainment and food for your family. Keep your personal transactions separate from your business ones.
Fast Track Your Receivables
When Tesla faced a cash crisis in 2008, the company solved this problem by accelerating the receivables. The faster money starts flowing into your business, the sooner you can solve your cash flow issues.
One strategy that you can borrow right out of Tesla’s playbook is to offer and accept pre-orders for a product before it hits production. Besides this, you can also implement these other strategies:
- Provide additional modes of payment to make paying for your goods and services more convenient. You can accept credit cards and electronic payment options. You could also take this an extra step further by accepting specific cryptocurrencies, such as Bitcoin and Ethereum.
- Zero in on your past due accounts. Check your accounts receivable for past due clients and begin making phone calls. You can ask these clients for partial payments if they are unable to pay their outstanding balance in full. Every penny counts.
- Send your invoices more frequently. Rather than wait for the full completion of a job to send an invoice, create invoices every two weeks or every week to cover the services rendered up to that point.
- Begin sending your invoices early. Make sure you invoice clients immediately after the delivery of your service or product, instead of sending all invoices out on a specific day of the month. You’ll receive your payments sooner when you send your invoices early.
- Ask new customers for an upfront partial payment or a deposit, instead of billing the whole amount due in one invoice.
Add New Streams of Income
You can alleviate cash flow issues by introducing new sources of income. Here are a few suggestions:
- If your business is only catering to local clients, think about expanding your offerings to a bigger audience. Consider setting up an online store, so you can sell your products to other states or overseas.
- Pursue an income stream or a sideline not related directly to your main business. An example is to turn a hobby into a side business. You can invest any revenue you earn in your primary business.
- Think about offering new products or services. If you are unable to serve as many customers as usual, sell an online course or offer memberships.
Reward Early Payments
Give clients a small discount if they pay for a product or a service in full. A discount of two or three percent, for instance, could be a small price to pay to obtain access to urgently needed cash.
Negotiate Your Payables
If you can reduce or delay the amount of money flowing out of your small business during a cash flow crunch, then this will help cut down the strain on your working capital. Inquire about postponing payments with your vendors.
Although some vendors may be unwilling to budge, others may be willing to work with you. If this is the case, work with cooperative vendors and win their trust.
These are five ways to help you maintain an acceptable cash flow during times of difficulty or uncertainty. While you’re doing your best to return to normal, make sure that you come up with measures to avoid falling into that situation ever again.