If your business's bank balance is keeping you up at night, the first thing to do is calculate a quick cash flow analysis to ensure the accuracy of your numbers. (The U.S. Small Business Administration offers a method to do so here.) Next, consider employing some or all of the following strategies to finance short-term cash crunches so that you can focus on what you do best—delivering outstanding products and services to your customers.
1. Focus on your receivables.
The number one thing that makes a business succeed or fail is its customers. If customers are willing to pay (or use) your product or service, then there's a likelihood that cash is around the corner. Perhaps your company is excellent at closing sales and adding new customers to your community, but the payment period is a little slow. Consider creative ways to finance cash crunches and collect the money faster to help smooth out cash flow bumps. One way to do this is to offer discounts for early payments. Businesses that offer early discounts often reap the benefits of early or on-time payments, steady predictable cash flow (especially as many merchants will frequently pay early to take advantage of it) and a reduction of collection costs, which can even offset the discount itself.
Reaching out to offer a money-saving incentive to your customers is also an excellent reason for personal interaction. A simple phone call to inquire about their well-being, how you can serve them better, and offering them a discount because you value them so much, has the double bonus of making customers feel appreciated, valued and an even greater part of your community.
2. Push back on your own payments.
The counterpart to trying to collect payment earlier is to try to pay your suppliers as late as possible. (Yes, this may seem a little hypocritical after point #1, and you might not get the wiggle room. Kudos if you do!) This maximizes the number of days in between when precious cash can be used for non-negotiable must-pay items, such as salaries, taxes and rent. Many suppliers will accept 30 to 45 day (or later) periods for payment. In fact, this may be a point for negotiation early on in the relationship. Your suppliers are, quite simply, focused on getting paid in a timely manner. If you can ensure timely payment, even if it's at a consistent but later interval, this might be enough to buy you the flexibility you need. In addition, be sure to ask for discounts. Your suppliers might be willing to offer them to help out as well as contribute to the continuity of a paying customer.
3. Use credit cards or revolving accounts.
Another way to finance cash crunches and find more free-flowing cash is to ask about using a credit card to pay for purchases. The supplier gets paid on time, and you have the extra benefit of a delayed payment date for the balance. If you pay balances in full every month, then this simply moves the date on the calendar for you gaining even more days to use and collect cash. As a bonus, many credit cards or revolving accounts offer special incentives for businesses, such as interest-free minimum payments and air miles or cash rewards that can add up quickly.
4. Be ruthless with existing contracts.
Businesses often enter into pricey contracts for infrastructure services that they “set and forget," such as long-term laser printer contracts and customer relationship management (CRM) software. Spend time reviewing them to determine what is really essential. Negotiate for lower costs, or cancel the contract altogether—especially if the buy-out is cheaper than the long-term cash outlay.
Enterprise technology tools, such as website hosting, CRM software, and media tracking software, have become lighter, cheaper and more user-friendly as the next generation of technology innovators focus on low cost and high functionality. Find an option that is more budget friendly, such as month-to-month per-seat payment instead of being locked into long-term commitments. If your team uses it, great! If not, then it shouldn't be a drain on your cash resources.
5. Sublet unused office space.
Your business's real estate may be just the place to find immediate cash. If you have unused office space, or you can create free space by fitting your existing organization into a denser spot, consider subletting some of your office space. This generally requires landlord permission. Many small businesses have outgrown their initial location or shared-work spaces but may not be ready for the prime time of commitment to a five-year lease. Offer short-term space and facilities to monetize a fixed cost that is undoubtedly a big part of your monthly cash outlay.
6. Consider small-business lenders.
Peer-to-peer lending is a growing industry as investors look for new outlets that provide a return while offering much-needed financial resources to community members, making new sources of capital available to small businesses in a fraction of the time compared to traditional loans and often at reasonable interest rates. These short-term loans can be based upon personal credit or business financials and provide much needed alternative financing.
Should your business require more capital to finance cash crunches, consider looking at venture lenders. These non-bank investment entities look for high-growth businesses in sectors such as technology to provide operating or growth capital that maximizes the existing founders' equity. These lenders tend to have aggressive interest rates, fees and seek a small bit of equity for investment. In return, they offer capital based upon a variety of factors that ultimately looks at the potential of the business, the founders and the revenue growth.
The size, stage and growth trajectory of your business are critical factors in the determination of your month-to-month cash needs. Regardless of where you are, it is a good idea to periodically review your cash flow strategy and figure out where you can be creative in making every dollar go further, faster.
The information contained in this article is for generalized informational and educational purposes only and is not designed to substitute for, or replace, a professional opinion about any particular business or situation or judgment about the risks or appropriateness of any financial or business strategy or approach for any specific business or situation. THIS ARTICLE IS NOT A SUBSTITUTE FOR PROFESSIONAL ADVICE. The views and opinions expressed in authored articles on OPEN Forum represent the opinion of their author and do not necessarily represent the views, opinions and/or judgments of American Express Company or any of its affiliates, subsidiaries or divisions (including, without limitation, American Express OPEN). American Express makes no representation as to, and is not responsible for, the accuracy, timeliness, completeness or reliability of any opinion, advice or statement made in this article.