Cash Crunch: How to Improve Your Business Cash Flow
Not enough cash coming in?
Many small businesses battle cash flow problems, sometimes for years. This can be dangerous, especially in a choppy economy.
If you have frequent cash flow pinches, these days you’re really living on the edge.
If you’re tired of the “excitement” and want to avoid ultimate disaster, you need to be asking some important questions, and then taking decisive action.
How do you know there is a real problem?
This may seem obvious, but you need to know from a very basic standpoint if there are serious issues brewing in your business as soon as possible. A cash pinch could be a serious warning sign.
Besides looking at your bank account balance, your Profit & Loss Report (also known as your Income Statement) is a quick way to identify the main issue(s).
Has there been a big dip in how much you’re bringing in in Sales recently? Do you compare your sales numbers on a monthly basis. Knowing your numbers helps you identify dangerous trends that could be emerging.
What about your expenses? Has there been a big increase in overhead over a short period of time? Or has the change in the economy caused some of your cost for making each sale to creep higher and higher?
Another question to ask is….
Do cash flow problems keep coming back?
Many businesses are seasonal and typically have a high season and a low season. If you’ve had a crunch like this before, you will want to compare your numbers to last year at this time. Did you have the same problem? Is there something you can do that would help to even out the cash flow?
For example, often landscaping companies will create another income stream in their off season (wintertime) by attaching a plow to their trucks and offer snow plowing services. Or accountants whose bread and butter comes during tax season, add tax planning or bookkeeping services to their service mix to help even out the slow times.
Your highs and lows may not be as obvious, but if you see a pattern, is there some other product or service you could offer that would sell well during your lean time?
Aim to build several sources of income to keep the money coming in build stability throughout the year.
How to handle the short-term issues and solve your cash flow problems for the long term
When in the midst of a cash crunch, what you need more than anything is more cash quickly. That can take the form of a boost in sales, or it can mean collecting the money already owed to you.
One the easiest ways to solve a cash flow pinch is to run a special promotion to pull in some quick sales. More short-term sales may not solve the real problem, but it will get you to a place where you can breathe and focus in rationally to identify what’s really going on in your business.
To solve recurring cash crunch woes, you can’t just live in the moment. You need to identify what has changed or is changing. You also need to come up with a strategy to protect yourself for the long term.
Here’s my three-phase approach for getting into action so you can conquer the cash flow monster before it gets out of hand:
- Maximize the money coming into your business from as many different sources as possible, creating systems and policies that keep the cash streams flowing consistently and simultaneously.
. - Evaluate what it costs to run your business and how much it costs to sell your products / services. Identify your most profitable items, and dump any that do not have a reasonable margin. You will also look at your overhead and identify any areas where cash is needlessly leaking out of the business (Hint: To do this right, you will want to review both your P&L Report and your Balance Sheet over the period of a year)
. - Prepare a budget and a forecast for at least the next 3 months, and track your progress. If your business is seasonal, you will need to build into your budget a cushion fund that you will contribute to in the busy season, and draw upon in the slow season.
By going through these basic steps, your business will become much stronger. You will be able to recognize and navigate changes that affect your cash flow. You can protect yourself and ward off cash crunch crises before they ever hit.
Would you like specific strategies and step-by-step action plans to pull in more cash FAST and turn your business into a solid cash flow machine? Then be sure to check out my new Cash Flow Mastery Course.
