Despite your best intentions, cash flow problems can happen.
There could be hundreds of reasons your business is cash strapped, especially as we enter year three of a global pandemic.
Supply chain issues, staffing and delivery delays affect thousands of businesses every day.
And that shows up on your bottom line.
Here are four strategies we suggest to rebound quickly from a cash flow issue.
1. Accelerate your receivables. By shortening the window for payments due, you can increase your available cash quickly. Invoice clients immediately, before the project or service is complete. That way, by the time you deliver, the bill is already on the way. You could even offer a special discount for clients who pay early. Check your books and get on the phone to past due clients. Even a partial payment can help. Another option is to offer alternate payment options, like with credit cards, online or mobile.
2. Check profit margins. Go up and down your business plan and trim as many nonessentials as you can. Look at jobs, clients, employees, events, marketing strategies, products, and services. This is a great opportunity to identify areas of waste or unnecessary expense to remove from your operations. Do you need to adjust your pricing to reflect increases elsewhere?
3. Delay vendor payments. Be upfront with your vendors and explain your situation. If you’re a loyal customer, they might be willing to work with you on delayed or partial payments. If not, disable autopay on your bills and wait until the last possible day to submit the payment.
4. Reduce your inventory. It’s a tricky time right now. Some businesses make the mistake of buying too much inventory, which can tie up a lot of cash. See if it makes sense for your business to carry less inventory and only order more when it’s absolutely needed. For the short-term, look to liquidate any unnecessary inventory and recoup some of that cash — even if it means selling at a discount.
The biggest point we want to make is that you have to act quickly during a cash shortage. Don’t put your head in the sand and hope your problems will go away on their own.
This is the time for you to think on your feet, be nimble, and make hard decisions that will help your business in the long run.
If you already have a budget and a forecast for your business that helps you predict your cash flow, now is the time to dig in and create different scenarios to help you understand how changes in sales will impact your cash.
That way you’ll be prepared for any future adverse events.
If you need help adjusting your cash flow, contact our accounting experts today. We’re ready to work together to get your business back on track.