Nobody can see into the future, the conventional wisdom goes. But that's not always the case. You might not realize it, but when you're a CEO, you often can see what's in store for you. For instance, if you have cash-flow problems in a business, and you don't have a lot of cash reserves on hand, you probably know exactly what lies ahead for your company.
So if you're facing a serious shortage of the green stuff and recognize it as a warning of what's ahead, you're probably asking yourself, "What should I do?"
But instead of asking "What?", consider asking yourself "Who?" That is, "Who can help my business?"
Many business schools have programs where a team of students supervised by a business leader analyze a business and make recommendations about how to meet the owners' objectives.
—Heidi Pozzo, founder, Pozzo Consulting
Fortunately, there are a lot of people you could turn to. (That's right, you don't have to type "cash-flow problems in a business" or "how can I convince my spouse to let us put a second mortgage on our house?" into search engines anymore.)
Here are several suggestions, from the obvious to the less so.
1. Identify the reason for your cash-flow problems.
If you're dealing with cash-flow problems in a business, you're going to want to diagnose why you're having issues, says Nishank Khanna, CMO at Clarify Capital, an alternative lending company headquartered in New York City.
“Is it due to high overhead expenses? Are your problems low gross margins? Understanding the issue is important to avoid having cash-flow issues in the future," Khanna says.
He also suggests calculating your debt service coverage ratio, known as a DSCR for short. It's basically your earnings before interest, tax, depreciation and amortization divided by your short-term and long-term debt.
In other words, a DSCR measures your business's ability to pay back your debt.
“We would all love to get $10 million. But instead of going with what you want, understand how much capital you can realistically afford," Khanna says.
2. Meet with your banker.
This person isn't surprising: If you need immediate revenue to offset cash-flow problems in a business—your (hopefully) friendly loan officer is probably the person to go to first.
“You should never discount the importance of establishing a relationship with your bank. Yes, you are able to get loans online now without human interaction, but it's not always the best option," says Mike Zeiter, a certified public accountant, personal finance specialist and owner of Foundations Financial Planning in Carthage, Missouri.
“Most business don't start out needing big loans. It's when they are ready to expand or add employees that they need additional cash," Zeiter says.
That's why business owners should be nurturing a relationship with the managers and loan officer at their bank, he adds. You can have someone you can turn to that can offer you a quick, low-interest loan, should you need it down the road.
3. Try an alternative lending company to help stave off cash-flow problems in a business.
If you don't have a relationship with your banker, or you've been turned away, you may want to consider an alternative lending company that specializes in commercial loans.
There are many out there, but make sure you find one with a solid reputation that offers reasonable rates.
If you do use an alternative lending company, Khanna says you'll want to have the usual paperwork that you would expect.
"Six months of bank statements are usually enough," he says. "If you're looking for more than $75,000, also keep the most recent business tax returns handy."
It's also a good idea tell your lender how you plan to use the capital, Khanna says.
"For example, if you are a transportation company planning to buy a new truck, equipment financing is a better fit than a working capital loan," he says.
4. Talk to your accountant.
Don't have a CFO? You probably have an accountant then, right?
If you don't, maybe now (or soon) is the time to get one.
Your accountant may not be able to fix your short-term cash crunch, but they should be able to give you advice that helps you in the long-term.
Zeiter, who specializes in working with small companies with 10 employees or less, generally goes through a company's receivables process with the owner and makes suggestions on how to get paid faster. When there are cash-flow problems in a business, he may suggest the owner take out a business line of credit.
“This will allow them to only take the money when they need it and minimize the interest cost," he says. "I usually don't advise taking out a loan for cash-flow issues because that can lead to unnecessary spending when the cash is in the bank."
5. Hire a consultant.
Cash-flow problems in a business can often be solved by bringing in a consultant. You might hire one, for instance, who could help look for ways to cut costs without hurting quality, and doing so may improve your cash flow. Or you might find a consultancy that specializes in making payment process improvements to correct cash-flow mismanagement.
Leslie Backus's Detroit-based company VSPIRE does that. When a company comes to her, she generally makes three suggestions.
Have a terms-adjustment strategy. “That means they should conduct a thorough analysis on their entire supply chains payment terms to be sure these terms are in line with their industry standards," Backus says.
Make sure you're getting all the discounts you can get from your suppliers. Backus says that business owners will often be told by upper management that they've maximized all the discounts possible, but will later learn that that's not the case.
Implement an electronic integrated payables solutions to pay all suppliers electronically. “Companies need to focus on 100-percent payment automation to their suppliers," Backus says. “Due to the increase in check fraud and compliance issues the future is electronic."
6. Contact a collection agency.
This isn't a fun route, but sometimes, enough late payments can cause serious cash-flow problems in a business. And when that happens, you may decide that it's worth hiring a collection agency.
That's a suggestion from Paul Gordon, a business development and partnerships manager at Micro-Office Systems. This Cleveland Heights, Ohio, business provides services that help doctors with their billing and collection functions.
Given how complicated health insurance can be, it's not surprising that Gordon says “the number one reason for a patient not paying their bill is that the patient did not understand the balance was their responsibility."
Whether your customers are making an honest mistake or not, chasing after payments can be a drag on your time. It may help to have someone else do it, even though you'll have to share whatever you collect with the collection agency.
But as Gordon argues, your staff probably won't take much initiative to chase down payments on their own. When Gordon was the manager of a doctor's practice a few years ago, "I gave my billing staff the choice between calling patients that were past due and cleaning toilets. At least we got the toilets cleaned."
7. Go to a college professor.
A college professor probably isn't the first person you'd think of when confronted with cash-flow problems in a business. But if you've solved your short-term cash crunch and are looking for ways to prevent revenue from drying up later, it may be worth a shot.
"Many business schools have programs where a team of students supervised by a business leader analyze a business and make recommendations about how to meet the owners' objectives," says Heidi Pozzo, founder of Pozzo Consulting in Vancouver, Washington.
Even better, these programs are often offered for free or at a low cost. Your company gets to be something of a guinea pig and a lab for the college students, but you also get the benefit of whatever fresh cash-flow solutions these bright young minds find.
Besides, sometimes other people can see issues that you and your employees simply can't.
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