What Should Your Company Do When Cash Gets Tight?
Every business goes through ups and downs. Many have mechanisms and safeguards in place to compensate for the “downs.” However, even the best-laid plans sometimes don’t pan out due to unpredictable events, and the result can be a temporary cash shortfall.
Some businesses get dangerously close to the point at which they won’t be able to pay their bills and make payroll. They’re barely scraping by. Business owners going through such a short-term cash crunch need to figure out a viable path forward.
Here are five strategies companies should consider when cash gets tight.
1) Reduce Inventory Levels
If you sell physical products and you have inventory that’s been sitting in a warehouse or stockroom for a while, that inventory represents cash that’s no longer in your pocket. If you can figure out a way to move that inventory, whether you take a steep discount, request a higher upfront payment, offer a flexible payment plan, or promise extra incentives to salespeople, you can turn those products back into cash.
2) Push Your Payables
Look at the bills in your system. If you normally pay a bill in 30 days, can you push it to 40 days without disrupting your credit, paying a penalty or harming an important business relationship? These decisions should be made on a case-by-case and vendor-by-vendor basis. Prioritize payables based on who must get paid on time and who can wait. Base these decisions on who is most important to your business operations, not who complains the most when a bill is late. Stretching payments from certain vendors can bring much-needed relief when cash gets tight.
3) Constantly Review Accounts Receivable
Who owes you money? When was the last time they were called? Have they been called at all? Some customers could be experiencing their own cash shortfall and waiting to pay until some calls and asks for it. If someone is late with a payment, find out why and when you should expect to be paid. You may as well be the squeaky wheel to those people, especially if it will help you generate cash flow. Make sure invoices go out on time and be vigilant with accounts receivable all the time, not just when you’re short on cash.
4) Review Your Subscriptions
Take a hard look everything – landline phone service, internet, cable TV, mobile data plans, email and other business applications, software licenses, journals, audio and video streaming, and any other services for which you pay a monthly fee. Can any of these services be canceled or reduced to lower costs? For example, if you’re on a mobile data plans that’s more than one generation old, you might be able to save money by switching to a new plan. Also, research from Flexera Software found that 93 percent of companies are paying for unused or underused application software.
5) Review Your Leases
This applies to both office space and equipment leases. You can call the leasing company or landlord and request different terms. For example, you can ask for a reduction in your monthly fee in exchange for adding months to the end of the lease. There are no guarantees that the leasing company or landlord will agree, but it can’t hurt to have the conversation if cash is tight.
Remember, these are primarily short-term solutions to a short-term cash problem. Chronic cash flow issues indicate larger, corporate-level business issues that require more in-depth research, analysis, and assessment.
Ideally, you would be able to prevent a cash shortage from happening in the first place, but sometimes unforeseen circumstances and life, in general, create obstacles that preventative measures can’t overcome. Keep these tactics in your playbook just in case cash gets tight.