Cash Flow Crisis – What you Need to Know to Survive

cash flow crisis

How to survive a cash flow crisis? What would you do? Do you have plan of action that will allow you to make the necessary and correct decisions to ride out the storm? It’s a conundrum that many businesses at some point of their life, will have to face.

Many small businesses face a tough time balancing accounts receivable and payable. It could be tough making timely payouts to suppliers, and vendors. There could be times when your accounts run like clockwork. You can take advantage of the healthy cash flow during those days to grow your business. During the time of the cash flow crisis, there are the best practices to ensure your business remains strong.

Updated Financial Statements

Insist on regularly updated financial statements from your accounting professional. The income and the cash flow statements will keep you alert to the way money is moving through your business. While you may not prevent the cash flow crisis, you will at least be watchful. You will have sufficient lead time to handle the situation.

Borrowing Options

It is prudent to open a line of credit when your financials are sound. It is likely you will get quick approval. If this didn’t happen at the right time, you may still explore options. You might get a short term loan that can be secured with business assets. You look for a revolving line of credit or other borrowing opportunities. There are lenders that use criteria different from commercial banks.

Customer Payments

Businesses invest their time and effort in customer relationships. They could be your source to bank upon in difficult times. You may request them to make the invoice payments as early as possible. You may motivate them by offering a token discount and encourage them to pay still earlier with a greater rebate. Consider increasing your collection activity if there are significant receivables.

Cut Down Expenses

Even if you do not want to alarm your customers and employees with drastic cost-cutting measures, you can make a few creative tweaks to cut down expenses. You can reduce energy consumption. You can curb heavy expenses on entertainment or travel of your employees while preferring video conference as an inexpensive alternative.

Layoffs are often considered as the last resort. They are often not of much help if you consider several expenses including severance. Payroll reduction alternatives should be considered instead. Pay cut could be manageable for most of your employees by reducing hours across the board. You can temporarily do away with overtime policies and offer unpaid sabbatical to volunteers.

Sell-off Non-Critical Assets

You can sell off non-critical assets. These include equipment that is duplicate or not in use. They could also be expensive assets that are not being used at their full capacity. Contemplate doing away with company cars. You may instead focus on less-travel intensive sales techniques. Consider consolidating operations that take up less space. The excess real estate can be used to generate funds in one or more ways including lease or sell. The important thing here is to get creative with the ideas focused in the generation of cash-flow.

A cash-flow crisis is often in the nature of a short-term that tests your resilience and endurance. During the cash-flow crisis, it is your mental tenacity that is your most critical asset. It is also the time to get active to access help and support from anywhere possible rather than wait and see your business crumble.

Ainsworth Accounting Solutions are here to help you with any of your business accounting needs and we’d be happy to speak with you. Simply contact us today to take the next step!

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