What Can You Do When Finances Are Tight?
It happens to almost every business owner: A large, unexpected expense combined with late-paying customers leaves you feeling pressure from the dreaded “cash-flow crunch.” One way to avoid the pain of tight finances is to set up an emergency fund that provides immediate access to cash to help deal with surprise expenses and receivable issues.
However, if you find your business in a cash-flow crunch without access to an emergency fund or other capital, fear not. Here are three ways to help relieve some of the pressure when money is tight.
1. Review Your Receivables
One way to help resolve your money woes is getting late-paying customers to pay their bill.
If your net 30 has become net 60 or greater, it may be time to become the squeaky wheel. Consider starting with the customers who owe you the most money, as well as those who are the most delinquent in paying you. It's possible their business is struggling, or maybe they never received your invoice. Regardless, a phone call may help clear up most of the problems.
2. Review Your Payables
Once you've gone through your receivables, if finances are still a problem, you may want to take a look at your payables situation. What invoices can you move back 15-30 days?
Calling your vendors and letting them know you need more time to pay your bill may give you some wiggle room. When making the request, it doesn't hurt if you've been a customer in good standing. Simply ignoring your payables isn't the best idea; a dialogue may help clear the air, whereas a lack of communication may make your vendors fear the worst.
3. Generate Short-Term Revenue
I recommend pursuing this step after you've reviewed your receivables and payables. Business owners may think that making more sales and generating more revenue will solve most of their problems, but that isn't always the case. If you don't maintain control over your receivables, there may be some companies that will take advantage of your position by sitting on your invoice.
Depending on the type of business you own, generating short-term revenue can range from easy to impossible. One of my clients owns a catering company and decided last year to open a retail location. They ran way over budget thanks to unexpected issues and needed to generate almost $10,000 to cover their costs. We created a custom program in which they sold holiday gift certificates for catered parties, lunches, dinners and everything in between. They sent the offers to customers via their very successful email marketing campaign. In less than 10 days, they generated almost $14,000 in revenue and were able to cover their bills. Today, the company's retail business is bustling!
Conversely, a lawyer, accountant and doctor may have difficult times generating short-term revenue because of the complex services they provide. They may be better served by setting up a line of credit or creating an emergency fund in the event cash flow becomes an issue in their respective companies.
Whether you've been in business for 20 years or you are just starting out, at some point, your company may feel the effects of cash-flow crunch. The length of time and level of pain is directly proportional to the steps you took prior to hitting the financial pothole. Hopefully, the crunch is simply a minor inconvenience and not something that could potentially ruin your hard work. To paraphrase an often-used quote, “Don't let a $500 problem become a $5,000 or even a $50,000 nightmare.”
For more tips on planning for business growth, access our exclusive guide from LegalZoom CEO John Suh, Move Your Business Forward.
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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.