Money is the fuel of any business, regardless of size. Without money, you can’t pay your employees, vendors, social media services, and everything else that keeps your business cogs turning. So what do you do when your cash starts running low?
Cash flow problems can happen even if your business is doing well. The best way to avoid the majority of these problems is to prevent them in the first place. However, when you are faced with low cash reserves despite doing what you can to avoid that situation, here are some options you can consider:
1. Determine factors you can control
When it comes to cash flow problems, there are usually factors that you can control and those that you cannot. Determine the ones that you do have a say in and focus on them. This strategy will not only help solve the problem more efficiently, but it will also reduce your stress levels when you stop obsessing (but not ignore) over the things that are out of your control.
2. Consider invoice factoring
Most clients pay invoices between 30 and 90 days. For big companies, this strategy helps them control their cash flow. But for small businesses like you, waiting one to three months for payment is not always an option. You have bills to pay, and your vendors are not going to wait 30 to 90 days for it.
Encouraging clients to pay early can help improve your cash flow. To do this, offer a small discount for early payment or a free service that they can use. However, this strategy might not always work, and you ultimately have to wait a long time for payment. What do you do when you start running low on cash before their invoice is due?
Consider invoice factoring, wherein a factoring company advances your invoice so that you don’t have to wait one to three months to get paid. Qualifying for this type of service is relatively easy. Your clients need to have reasonable profit margins and creditworthiness.
3. Start cutting costs
At the first sign of money trouble, take a step back and analyze your numbers. How much operating time do you have left, given the current circumstances? And which areas of your business can you cut costs without making the situation worse?
The percentage of costs you can lop off depends on you. But in general, a 25% cut is enough to help extend the life of your business. You can go higher. But do so with caution because you might be sacrificing the quality of your output for the sake of extending your lifespan. With the borrowed time you get by cutting costs, you can focus on figuring out how to improve your cash flow and get back on track.
4. Negotiate with your landlord
Did you crunch the numbers and realize you can’t pay the rent next month? Rather than waiting for a late notice from your landlord, be proactive and start the negotiation. Have a sit-down meeting with your landlord, explain the situation, and propose solutions to the problem. They might not be willing to give you rent for free, but they might be open to the idea of reducing rent or setting up a repayment plan.
The worst that your landlord can do is say no. Take note that they will be affected as well if they have to kick you out for not paying the rent, so you have a high chance of fixing the rent problem if you ask.
5. Sell something else
When your cash reserves start depleting, you can replenish it by selling another product or service related to your current offerings. Gather your team and come up with a simple, easy-to-produce product or service that has a reasonable demand in the market. In this way, you can get a boost in sales (even just temporarily) and extend the life of your business.
The last resort? Put your own money into the business or ask your friends and family to invest. Although this option carries its own risks, it can help your company stay afloat until you improve your cash flow.
Running out of money is a common problem for many small businesses. Don’t wait for your cash reserves to go down to zero. At the first sign of trouble, use these strategies to address your cash flow problems and avoid imminent closure.