One of the biggest challenges for a business is managing cash flow in the business. If you ever face a cash flow shortage that means more money is flowing out of the business than flowing in to the business. Therefore, a business should be ready to take necessary steps to avoid any crisis that may happen due to the shortage of cash flow.
Following are few steps that you can follow to save your business from any unexpected shortage of cash flow.
- Improve profit margins and adjust the business plan
You need to understand why you had shortage in cash flow and whether it is a one-time incident or recurring incident. You will also need a plan to handle future shortages. Try to understand which areas of your business is least profitable by looking at your profit and loss statement and profit margins. This will help you to improve your profit margins and adjust your business plan according to that.
- Accelerate your receivables
The quicker money begins flowing into your business, the sooner your cash flow problems will be solved.
Following are some strategies you can use
- Ask new customers for a deposit or partial payment
- Start sending your invoices early.
- Send invoices more frequently.
- Focus on your past due accounts.
- Make it convenient for clients to pay by offering additional methods of payment.
- Negotiate Your Payables
Try to delay or reduce the amount of cash flowing out of your company during a cash flow crisis, it will help reduce the strain on your working capital. Inquire your vendors to negotiate payments or about delaying payments
4. Raise Investor Capital
Try to increase your business’s working capital by selling equity and it will help your in attracting a new business partner also. But be sure you truly want or need to sell a piece of ownership in your business to solve a cash flow crisis.
5. Slash Expenses
You need to be especially critical of spending during a cash flow crisis. During a cash flow shortage, you must prioritize your company’s expenses. Eliminate all unnecessary expenses and only spend on the costs that keep you operational and generate revenue
In a cash flow crisis, you can also sell non-essential business assets. This is a temporary fix, as you can only sell an unnecessary item once, but it is an effective and quick way to raise some cash when you are in a shortage.