Gateway Commercial Finance

6 Tips for Dealing With Your Business’ Next Cash Crunch

You’re looking at your projected cash flow, and it’s not a pretty picture. You’ve got some cash coming in the door in the next couple of weeks, but some is 50/50 at best. Meanwhile, you have payroll, vendor bills, rent, and other expenses.

Every business owner has been in this situation at one point or another. Managing cash flow is one of the most challenging aspects of business ownership, especially for young and small-to-midsize businesses. Banks and other traditional lenders usually aren’t too eager to lend to smaller companies.

dealing with cashflow crunch

Your Options To Improve Cash Flow

The good news is that you have options. But to take advantage of those options, you have to take action. Look at the situation calmly and objectively and plot a path to get cash in the door before the crisis hits.
Depending on your business and industry, there could be several things you could do. Here are six good ideas to get you started.

Tip #1: Negotiate with your vendors.

negotiate with vendors

You may not be able to control how much money comes in the door, but you can control how much money goes out the door. If you can reduce the payments you make to vendors in the next few weeks, that will likely significantly impact your short-term cash flow situation.

Many business owners are reluctant to ask their vendors for help because they feel it’s a shot to their pride. Or they may think that the vendor would not agree to take less money. Here’s the thing, though. Vendors are business people, too. They’ve been in your situation and understand these things happen.

Also, they want to keep you as a customer. If you go out of business, that’s one less account they have to service. If you’ve been a good customer in the past, they’ll probably be happy to help you through a tough stretch so they can keep you in the long term.
Make a list of your upcoming payments. Start with the vendors who are least critical to your business. Call them, explain the situation, and ask how they can help with the following payment. They may reduce it. Or they may let you spread that payment out over a few months. Try to get anything you can to lower your upcoming outflows.

Tip #2: Sell unused assets

sell unused assets

Remember that machine you bought two years ago because you were going to expand into a new product line? And remember how the product didn’t take off as you planned, so now the machine sits in your warehouse, seldom used? Couldn’t you sell it?

Okay, maybe that doesn’t apply strictly to your scenario, but chances are good that you have something of value that you can sell. Perhaps it’s machinery. It could be computer equipment. It could even be a vehicle.

Review your assets to find value not critical to your company’s operations. You can post it online or even contact other businesses nearby that may have use for it. The key is to make sure that you price it to move. This isn’t the time to hold out for a top dollar. Place a premium on how quickly the transaction can close, not how much money you can get.

Tip #3: Offer discounts on your outstanding receivables

offer discounts on outstanding receivables

Seeing receivables sit on your books without knowing when they may get paid is tough. When times are good, you can let your customers sit on those invoices without pressure. When you’re in a cash crunch, though, you don’t have that luxury.

Now’s the time to reach out to those customers and ask them to make payments. Now, it could be that many of them are still well within your payment terms. It’s hard to demand payment if they’re not even to the due date.

However, many businesses are happy to pay early if you give them the incentive. Explain the situation and ask them if they would be willing to pay immediately if you offered a discount. Start low and then feel them out in conversation to see how much discount it would take. You want to discount as little as possible, but the overriding goal should be to get the bill paid immediately.

Review your receivables and see how much you can get in one round of phone calls. You’ll probably be surprised and may even get enough to cover your upcoming deficit.

Tip #4: Run a flash sale

have a flash sale

You may have a CMS or database complete with customer email information. Hopefully, it also has information about what products or services they’ve bought. You can use this data to contact them directly and get them to take action today.

Put together an offer on some of your most popular products and services. Price it so that it’s compelling. The discount can’t just be a “good deal.” It has to be something that will grab their attention and force them to decide.

Also, put a time limit on the offer. Let them know that the offer will go away forever if they don’t act in the next 48 hours or five days. Then, send a mass email to all the customers and prospects on your list.
Don’t stop with one email, though. It’s easy for people to see an email and return to it later. Of course, most people never get back to those emails. You need to keep your offer in front of them regularly and let them know that the clock is winding down. The urgency in your language should ramp up as your offer approaches closing time.
You can use email services like Mailchimp or Constant Contact to send bulk emails simultaneously and make them look personalized. Don’t just stick to email, either. You can also have your sales and customer service teams reach out by phone to get as much business in the door as possible.

Tips #5: Ask your management team to forego a check

ask management to forego a check

This should be an option of the last resource, but it’s better than missing payroll for your entire company. Your managers are more willing to understand the situation than some of your lower-level workers. If you miss a check with management, they may stick around. If you miss one for the whole company, prepare for a departure.

Sit down with your management team as soon as you know there may be a problem. Layout your plan to avoid the crisis using some of the above mentioned tips. Ask for their support and leadership in getting past this crisis.

Then, explain that if these methods don’t resolve the issue, there may not be enough cash to pay everyone. Ask them to skip a check or delay it until the cash situation improves.
They likely won’t be happy about the situation. However, as managers and executives, they may have more invested in the company’s success. They may even own some equity in the company. They’ll likely support you if you plan to deal with the problem.

Tip #6: Find a factoring partner

find a factoring partner

You may want to find a solution to your cash flow problem without calling customers or offering discounts. You don’t have any equipment to sell and don’t want to negotiate with vendors. If that’s you, then here’s some good news.

You can work with a factoring company to get paid on a portion of your outstanding receivables immediately. Here’s how it works. You submit some information about your receivables to the factoring company. They review the information and grant approval, usually within a day or two, but possibly within hours. They will then advance you a percentage of your receivable balance. It’s often a high percentage, such as 80 percent. You get that cash immediately. In the meantime, they work on collecting from your receivable clients. When they collect, they keep a small percentage for their work and then forward the remaining balance to you.

There are a few benefits to having this kind of partnership. First and most obviously, you get cash quickly. Also, your customers never know you’re in a difficult situation, so you can save some face there. Most importantly, you can get this kind of funding even if your credit isn’t great. Remember, the factoring company is concerned with your customer’s ability to pay, not yours.
As a bonus, this takes collections off your plate. The factoring company will handle collections so you can focus on what you do best.
Remember, though, no matter which method you choose, the most important thing is that you take action. Ignoring the situation will only make it worse. You can avoid the worst consequences of your cash crunch by taking action.

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