No one can expect clear skies every day. This is especially true in business. There are going to be periods where cash flow is tighter than normal, and it may even dry up to a mere trickle. With the right preparation and measures though you can weather the cash flow drought and you can come out the other side stronger than ever.
Make a forecast for the future
It is far easier to deal with a cash flow drought if you have prior warning. Making cash flow projections is an important part of running a business. Cash flow projections bring out trends on the numbers you are looking at. A realistic and regularly updated projection can help you spot any danger areas ahead so that you have enough time to prepare.
Cut unnecessary expenses
This may well be a pretty obvious point to you but many businesses do not realise how important it is. As soon as you foresee a cash flow drought you need to cut any expenses you can. Certain expenses are vital but some things just are unnecessary. Go through your expenses with a fine-tooth comb to see what can be cut. Sit down with your accountant (or an outside accountant like BC Accounting Services).
Never do not pay creditors you owe, but you can call your suppliers and debtors, explain your situation and inquire about alternative payment plans. If you do need to make purchases, opt for payment plans that go easy on your cash flow. Be careful not to incur extra expenses like charges and interest in doing this.
Increase your cash flow
Again an obvious statement but overlooked by many. Perhaps you could run a campaign or reassess your marketing efforts. This does not mean stray from your core business.
It can be about getting what is owed to you. Now is the time to get paid. If you are struggling to get paid you can consider 2 options: 1. Debt factoring – this is where you take your invoices to a third party who will themselves pay what is owed to you, and then take it upon themselves to obtain the money – for a percentage of the total cash involved. 2. Early settlement discount – this is when you offer a small percentage discount if they pay by a certain date.
Review and revise
Once you have weathered the drought, there is huge opportunity to grow. Review to see if there is anything you could have done differently to avoid the cash flow problems. Perhaps there is something you could have done to be better prepared. It should never catch you off guard, the signs are always there. Provided you are looking at the numbers regularly, you should never be caught out.
Take what you have learnt and put in place a strategy for the future. A cash flow drought is not pleasant, but it can make you stronger in the future.
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