Ways to Survive a Cash Flow Crisis
Cash flow measures the net amount of cash and cash equivalents coming into and going out of a business over a set period of time. It indicates the financial health of your business by showing how much cash your business has on hand. If the pandemic has taught us anything, it is that as business owners, you may have the best-prepared plans and the unpredictable happens. As a result of the unpredictable, your business may take a hit that makes cash flow harder to come by.
Here are some tips that any business owner should consider ahead of a cash flow crisis:
Talk with your Vendors
It is important that you keep strong relationships with your vendors and/or suppliers at all times, these relationships are useful when cash is in short supply. To increase cash-flow you can consider asking for extensions on payments. Another option is to ask for a discount in exchange of a long-term contract.
Encourage Early Payments
This is a good time to look at outstanding invoices, and to increase your collections activity. You can consider offering your clients early payment discounts. For example, if your client pays in full within 10 days you offer a 3% discount. If your business does not accept credit cards, this may be an opportunity to make an exception for clients who are willing to pay in full immediately.
In addition, it may be crucial in times of crisis to reduce product costs and offer huge discounts in order to attract more clients. Make it clear to your clients that this is a unique opportunity and that prices will not remain this low.
Adjust Staffing Levels
We are not talking about layoffs; this should be the last remedy you use to save money because it may cause a negative impact on the people who work for you. Instead, consider payroll reduction alternatives. For example, set strict rules against overtime or encourage employees to take unpaid time off if the volume of the business can afford it. Another alternative is to save on the cost of an office if your team is able to work remotely.
Cash advances on credit cards may be an option for you, but also consider making payments with a cash-back credit card. Check out our blog HERE where we discuss how company credit cards grant you access to working capital. When borrowing, be sure you understand the interest rates to avoid creating additional debt.
Make a Plan
Always have updated financial statements, you may not be able to avoid a cash flow crisis, but the better informed you are the better you will manage the situation. Be proactive in your cash flow management, have a cash flow forecast prepared to better understand times of cash difficulty.
Understanding your financial statements will allow you to react faster to the ever-changing business landscape, make better decisions, mitigate risk, and optimize your company’s performance. At CPA By Choice we can help you with your cash flow, feel free to call us or message us.