In a Business Cash Crunch? 5 Tips to Boost Your Cash Flow
One in four small businesses struggles with cash flow. Cash flow problems can lead to a bankruptcy filing even for profitable companies, where the business simply does not have the cash to pay their debts as they come due, even if they have more assets than liabilities.
Unfortunately, being unable to pay current obligations is one of several definitions of insolvency for bankruptcy purposes. So, how can your business avoid this problem and maintain steady cash flow?
1. Decrease overhead as much as possible.
The easiest way to maintain cash flow is to cut expenses wherever possible. By keeping a low overhead, you cut down on the potential for cash flow problems. Ideally, you will not have more overhead costs than income from customers, but that type of situation is not always possible, particularly for seasonal businesses.
2. Plan ahead.
Try to plan for dips in revenues ahead of time if you can. For example, if you know that winter is your slow season, try to “stock up” on cash during the other months to prepare for the winter crunch.
When you do have some extra cash, such as during a peak season, put your money to work by placing it in an interest-bearing account.
3. Set up an emergency back-up plan.
You can also take steps to secure a line of credit long before you need it. Having a line of credit with your bank can help you deal with leaner times or emergencies much more efficiently.
Consider talking to family and friends as potential investors before you are in dire financial straits. Many people will be more likely to lend you money or invest if they see you are planning ahead.
4. Consider restructuring your payment terms.
Many small businesses offer repeat customers a line of credit. Clients are required to pay these amounts off within a certain number of days. If this is your practice, consider setting up shorter repayment periods across the board.
You could also offer a discount or incentive for customers to pay earlier (such as decreasing the total by 5% if you pay in full within ten days instead of 30 days). Penalties of a certain percentage will also encourage on-time payments and increase your cash flow based on late payments. Just be sure that you give your clients plenty of notice you plan to alter your credit terms.
5. Try some new marketing schemes.
One quick way to increase cash flow is to offer a flash sale or special on service. These deals are designed to only be available for a short period, which spikes your revenue for a brief time if they are effective. They can also be a great way to clear out inventory.
This type of marketing scheme is much easier to create if you sell a product, but there are similar methods you can use for other kinds of businesses as well. Get creative with your marketing efforts to see what works for your company!
If you are still having cash flow problems, you may want to consider some bankruptcy alternatives that deal with restructuring or compromising your more substantial debts. Contact the team at MaxwellDunn to learn more about these options.