Broken and Empty Piggy Bank Representing Cash Flow Crisis

How to Get Your Small Business Through a Cash Flow Crisis

With the spread of COVID-19, many small businesses are taking a hit, making cash flow harder to come by. 

If you have a small business, your company is likely being impacted by it and you may be worried what would happen if your company was to run out of money. 

This is the reality a lot of businesses are facing, so what you do with your money can be the difference in keeping your company going and running out of money.

Whether you are dealing with the impact of COVID-19, or dealing with a cash flow crisis due to another event, there are steps you can take to get you through. 

Here are some steps that any entrepreneur should consider ahead of a cash flow crisis:

  • Plan it out
  • Consider Accounts Receivable and Payables
  • Cut Costs
  • Sell Equity
  • Make More Money!
  • Sign Up for InvoiceASAP

Make a Plan! 

Being prepared with a plan of action will mean you will have a better chance of survival and will be able to act strategically when the clock is ticking.

Create a cash flow projection and develop a plan based on this. This will give you a clear view of when the money is coming in, going out and help you to anticipate any pitfalls in the months ahead. In your plan you should devise useful strategies for increasing cash flow and paying off debt.

If you want to secure a loan, you’ll also need to share a document like this with your lender and provide them with a financial forecast, proving your ability to make loan repayments– another good reason to create this plan.

Look At Your Accounts Receivable and Payables

Before you start cutting costs, chase up the money that is owed and find ways to speed up the payment cycle. Here are some options to consider:

  • Send invoices out quicker
  • Offer customers more payment options such as credit card so you get paid faster
  • If you or your team are on the road a lot, consider a mobile invoicing solution.
  • Look into reducing your payment terms to 30 days or less
  • Offer incentives to customers who pay quicker
  • Charge fees to late payers (this should always be agreed with clients in advance of carrying out the work)
  • Request a down payment upfront or agree a payment plan with your client

On the accounts payable side of things, try renegotiating contracts with vendors and lenders. Seek extensions on the timeframe of your payments – do this before payments become an issue.

Cut Non-Essential Costs

If you are low on cash, the last thing you want to do is pay for things you don’t need.

A cash flow crisis usually involves cutting costs, but make sure you do this carefully.

Star by cutting things that are considered non-essential.

Do an audit across your company to see where the money is going, what is good to have, and what can be scrapped.

Sometimes, cutting costs means pay cuts. 

If you have to cut pay, don’t start with the lowest employees. Instead, begin at the top of the ladder. This will show good leadership and loyalty to your employees. Pay cuts to your staff should be the last item on your list. 

If layoffs are really necessary, consider reducing full-time employees to temporary, part-time or freelance positions first. However, do bear in mind part-time and freelance employees will probably need to look for work elsewhere to make up for lost income, so do not take this step unless it is absolutely necessary.

There are a ton of savings that could be made whilst also proving to help slow the spread of the Coronavirus. Consider e-conferences to reduce travel costs, better regulation of your thermostat or switching to more digital business solutions, ditching the paper and printing costs. 

If your entire team is able to work remotely, you can even save on the cost of having an office. For many companies, this can be a large expense and can save you a lot of money. 

Sell Company Equity or Assets

If you are in need of cash, consider selling part of your business to an investor. This is someone who will take on part-ownership of your company. 

This can give you some quick cash, but you should be careful who you sell it to and how much of your company you are handing off. The investor you choose will be someone you will be doing business with and may potentially have a say in decisions about your company. 

Another option is to sell off company assets that you are not using or are no longer needed. If you have equipment, real estate, or cars that are not essential to your business, consider selling them. 

Get a Quick Cash Flow Going

Getting more money is easier said than done, otherwise you wouldn’t need to plan for a cash flow crisis. 

However, there are some methods you can apply to get a quick cash flow going, but you wouldn’t want to make it permanent. 

It may be necessary in times of crisis to reduce product costs and offer huge discounts in order to attract more customers. This is a short-term solution and you should make it clear to customers that the prices will not remain this low. 

Liquidating the inventory will temporarily increase the cash flow, but it is important to have a strategy for replenishing the inventory. In the end, profits may be lower, but you will have money coming in. 

Another quick fix to improve cash flow is last resort borrowing. Cash advances on credit cards are an option, and so is taking cash distribution from an IRA. Both of these actions can have serious consequences if there is no way to pay them back in a timely manner. Cash advances usually incur higher interest rates, and the IRA is only tax-free for 60 days.

If times are desperate consider taking loans from family and friends or bringing in new investors. The situation may not be ideal, but most companies have to sacrifice to survive a cash flow crisis.

If you are having a cash flow crisis due to being impacted by COVID-19, there are some resources available to help small businesses through this time. 

Visit our Small Business Guide to Negotiating COVID-19 to learn more about some of these available resources. 

Let InvoiceASAP Help You Through the Hard Times

Small businesses all over the world are being impacted by COVID-19, and this impact is expected to end over 15,000 businesses nationwide. 

With the right planning for a cash flow crisis, and the right actions taken, your business doesn’t have to be one of them. 

With InvoiceASAP, we help small businesses plan for the future through online reports, while making it easy to send and pay invoices. Our services easily integrate with Quickbooks and is the only service that integrates with Quickbooks Desktop. Create your free account today to take advantage of our financial services today!