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Coping in a cashflow crisis

Emergency measures for when cashflow dries up

A common ailment afflicting small businesses is that of managing cash flow. However, there are ways to cut costs and boost your cash flow for a short time, to put you back on track long enough to find a long-term solution:

Cash flow tip 1. Go through all your accounts receivable and contact everyone who owes you money. Offer them a discount of 5% to 10% if they pay their bill in full within a week.

Cash flow tip 2. Double-check every order to make sure the invoices have been sent out for payment. Often you get so busy doing the work, you forget to bill for it. Collecting the money people owe you may provide some of the cash you need to survive.

Cash flow tip 3. Contact all your vendors and suppliers. Explain that you are having some difficulty and ask them to renegotiate your credit terms to extend the time you have to pay them. Many suppliers will help their loyal customers stay afloat during rough times because they don't want to lose you forever.

Cash flow tip 4. If possible, decrease your outgoing cash flow by closing your office and move your business into your home. Cutting your rent and utility bills may provide the financial solution you need-at least for the short term.

Cash flow tip 5. If you can afford to lay anyone off, do it. Job reductions are tough on employers just as they are to employees. If it's a good worker, you may have developed a loyalty to that person. Help them find a new job if you can, but the bottom line is you've got to save your business first. You may be able to hire the employee back at a later time. In the interim, hire temporary workers to handle projects until your cash flow is more positive and you are on a more solid financial footing again.

Cash flow tip 6. You might try to sell part of your business to an "angel." Angels are private investors, usually successful entrepreneurs, who invest in other businesses in their industry. If you have a viable business concept, product or technology, a sympathetic angel may be willing to bail you out in exchange for equity.

Attracting outside capital, especially venture capital, is not an option for an ailing business. Venture capitalists invest in fast-growing, successful businesses that provide an attractive rate of return on their capital.

What next?

We've produced a number of printed How to... guides, including one which shows you how to make sense of your financial data. You can download or order them free of charge from our download centre.

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