Finance Your Business
Checklist: How to survive a cash flow crunch
Steps to help get your business back on track
No matter how carefully you manage your cash, you might still face a time when funds flowing in aren't sufficient to cover your financial commitments. Even if it's only temporary, a cash crunch is stressful for any business owner. Taking quick action can help protect your relationships with suppliers, lenders and other partners—and your business may even emerge stronger.
Here are some tips to help you formulate a plan to weather a potential cash shortfall.
Find costs to cut
Put non-essential travel on hold, and postpone planned improvements or upgrades unless they are absolutely necessary. Temporarily suspend employee perks such as catered lunches or snacks, and ask employees to use supplies conservatively to cut down on new orders. If your problem is not just a short-term issue, try to negotiate lower rates with your phone and other service providers, or downgrade some services to free or lower-cost versions that still provide essential features.
Speed up customer payments
Call customers with outstanding invoices and offer a discount for paying before the due date. Focus on longstanding customers with whom you have good relationships. If any of your customers are struggling to pay overdue balances, allow them to pay in installments, but collect the first one immediately. Also consider tools such as Chase Express Funding, which allows small-business owners to receive funds from customers' card purchases the next business day, rather than the more typical several-day processing. Customers who have business checking and merchant services accounts with Chase can take advantage of this benefit. Another tool, Chase QuickDepositSM, allows you to deposit checks simply by snapping a picture of them.
Explain your problem as soon as you realize you'll be unable to make a loan payment on time. Doing so promptly may give your creditors more room to be flexible than if you let them know at the last minute. "Always be upfront and honest with your banker," says Chase Senior Vice President Don Maloney. If you give your banker adequate notice, it's more likely that you'll be able to work out a modified payment schedule, he says.
Review inventory and discount slow movers
"A lot of business owners fall in love with their inventory, and before you know it you've got too much of it," says Maloney. "It ties up a lot of capital, so getting rid of the slow-moving items can generate some much-needed cash." Even if you don't get the best price, if something is not selling well it's better to get some return on it than none at all.
Sell unneeded assets
For long-term cash crunches, consider whether you are making full use of all your equipment, vehicles or other major assets. If there are some that you rarely use, it may make sense to sell them and rent something similar on an as-needed basis. Maloney also suggests considering equipment leases rather than making major purchases outright.
Consider your location
If high overhead costs are causing cash flow problems, consider relocating. Though a move is typically expensive, it may result in significant cost savings long-term. If you can't move, consider subleasing part of your space to another company or individual, assuming your lease allows for this.
Look for opportunities to barter
If you have a good relationship with a service provider, ask whether it would let you “pay" with your product or service. For example, if you own a graphic design firm, you might offer marketing materials in return for an equivalent dollar amount's worth of IT services. If you can't make an arrangement on your own, explore online bartering networks, which often include thousands of companies. Be sure to keep records of these arrangements for tax purposes.
Confronting a cash-flow crisis is challenging, but it can be a good opportunity to fine-tune your processes and identify waste and unnecessary expenses. Review these tips for avoiding cash crunches for more ways to strengthen your business's financial foundation.
Ami Albernaz is a Chase News contributor who covers technology, finance and small business-related topics. She is a former lifestyle columnist for The Boston Globe and contributor to The Christian Science Monitor.