5 Tips for Managing a Small Business Cash Flow Crisis

As the old saying goes about stopping digging when you realise that you’re in a hole already, the same is true with a small business cash flow crisis. Once you know you’re in one, the important thing is what you will immediately do to extricate yourself from that situation?

To assist you, here are five tips on how to manage a cash flow crisis at your small business, should it arise.

1. Liquidity Matters - Get Extra Funds on Board

Whether the business (or you) have had a bad experience with financing before, be aware that some lenders will give you a second chance if it was some time ago. Also, it depends on how secure the business is and what industry it is in as to the associated risk level involved.

Don’t discount the idea that you can secure a loan even with bad credit to add much-needed cash into the business. It’s worth giving it a try because it can provide an improved business current account balance at a time when that’ll prove beneficial. Your stress levels will also decline as a result of the loan repayable over a few months or up to a year, providing enough time to course-correct.

2. Chase Up Older Invoices

Get tougher on chasing up companies or individuals that owe the business money.

Explain to them that the invoice(s) must be paid this week, or it’ll be necessary to take matters further. No one wants to start receiving calls from a debt collector on their business line or home phone, so it will encourage them to stop delaying and get the invoice(s) paid.

Don’t just leave them overdue. They may be overdue because the person or business is teetering on the edge themselves and choosing what bills to pay and those to ignore. By chasing up the bill every few days, it will make clear that your company should be the former, not the latter.

3. Change Payment Terms on New Contracts

When contracts come up for renewal, adjust the payment terms to Net 30 or less.

Revise any deals with Net 60 or longer terms. They’re unnecessary and don’t allow the earlier signal that a company is in trouble because they’ve not paid their bills on time. By the time this is known, it’s often too late.

4. Examine Cash Flow in Minute Detail

Sit down and go through every upcoming expense over the next 3 months.

See what is being paid out. Inspect every expense to determine whether it can be avoided. For instance, moving from renewing Microsoft Office 365 subscriptions to the free OpenOffice or LibreOffice suites is a substantial cost saver. Deferring the upgrading of PCs and laptops to the next year defers expenses that can wait.

Decide whether expenses are unnecessary, there’s a less expensive alternative, or it isn’t urgent or required. If the cash crisis is such that the business will run out of money before enough additional sales revenue arrives, you’ll need to slash and burn mercilessly on costs to prevent this eventuality and save the business.

5. Push Harder on Cheap or Free Marketing Efforts

Examine the marketing efforts to confirm which are the most profitable on the money spent.

Cut all the campaigns that deliver the least return for you. Transfer some of these funds to the most profitable promotions and pocket the rest to reduce the advertising budget.

Double-down on the free marketing opportunities like brand awareness through a business podcast interview, being quoted in newspaper articles on industry topics, and being a resource to potential customers online.

How much action is taken to stave off disaster depends on the severity of the situation. However, don’t just slash costs or lay off employees because it can stifle innovation and lower morale. Be strategic to not hurt the medium-term prospects of the business, so it can still succeed despite the cuts.

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