Small businesses usually struggle with cash flow issues during tough times mainly because of lack knowledge on business management.
They also fail to pay themselves at the fair market wage for the type of work they do and the amount of time they put in the business.
The tips below can help you make ends meet when the terrain gets rough.
Manage your inventory properly:
Having correct level of inventory will ensure that you maintain your customers and at the same time be able to pay your suppliers and your employees. And you have to ensure that every penny that leaves your business goes to a worthy course.
Small businesses are victims of fraud, theft, embezzlement and pilferage, and these accounts for the failures of up to 30 percent of small businesses. Do not think that your business is an exception; you can trust your employees but you have to verify everything.
Make reasonable reductions in operating expenses:
Spend only if it is very necessary for the survival of your business. In difficult times, try to evaluate all expenditures to determine whether they are necessary. But you don’t need to reduce so much as to cripple your business.
In difficult times it may not be necessary to have employees work overtime since the sales may be below the budget and may not meet the costs.
If matters become worse, you may ask exempt employees to take a temporary salary reduction or reduce the hours of non-exempt employees; this can be better than bankruptcy.
Delay capital spending and reduce working capital:
Delay expenditure on fixed assets such as buildings, machinery or equipment; unless the payback is very short. These assets may tie your cash and interfere with all your operations.
There are right times to spend on capital not when your business is struggling to make payroll.
Inventory and accounts receivable take up cash. In rough times, ensure low debt levels and collect what is owed to your business as quickly as you can.
In the short run, you can finance your business by using credit cards and selling excess inventory; but you have to ensure that you don’t reduce inventory levels to an extent that your customers will be affected.You can also try to stretch payables to maintain a healthy cash flow.
Restructuring your debt can lower your monthly payments. If the interest rate on a loan is reduced or the term of a loan increased the monthly payments will drop and put cash in your pocket just like refinancing assets.
Ask for concessions:
If you have fees, penalties or interests to pay, you can ask that they be waived. Don’t hide from creditors but ask for extended terms. If you have built a strong relationship with your creditors, they will definitely understand your predicament. And remember, they would rather your pay them later that to get nothing when you are declared bankrupt.
By observing the above tips, your business can survive a cash-flow crunch, but if you make a wrong move, you will see your business dying a slow and painful death.