wallet squeeze

Tips for Getting Out of a Cash Flow Storm

Running a small business can be all-consuming at times, but I believe that it’s so important to find time for the people who matter the most to you.

My days are certainly sunnier with my darling granddaughter, Norah Rose in the mix. Here she is enjoying her very first chocolate ice cream cone! We’ve been having a great time all summer, and I am thankful to be making these memories with her. It’s the simple things and special moments like this that make life so sweet!

But if you’re a business owner experiencing a cash flow storm, it can be very hard to enjoy the people and things that you work so hard for.

How do business owners know if they’ve gone from a cash flow squall to a more serious cash flow storm? To put it simply, they have run out of options—their credit cards are maxed out, their line of credit is used up and they have no more places to go and get money. They likely haven’t paid themselves in months, and then they suddenly realize that they can’t make payroll anymore, either. Things may feel like they are spiraling out of control.

The truth is, if a business is plunging into a cash flow storm, they have been headed in that direction for at least 30 to 60 days. When it comes to cash flow, it’s not about the problems you’re experiencing this month, because the money is already in play; employees have already done the work and they expect to be paid for it.

A new report from the JPMorgan Chase Institute analyzed data from nearly 600,000 small businesses across the US and found that only half maintain a cash buffer large enough to support 27 days of typical cash outflows.

This is unfortunately common among many so many small business owners who are just starting out. It can be difficult to maintain cash flow without a proper understanding of their books and unique cash flow requirements.

Still, a cash flow storm can be weathered in most cases. There are a few drastic approaches that a business owner can take to turn things around and avoid bankruptcy.

Control the outflow of money.

First things first, you need get more money coming in than is going out. Pay attention to your Accounts Receivable and devise ways to collect the money you’re owed right now. You can offer discounts to clients who pre-pay for your goods or services, for example, and get them to pay upfront to help you stay afloat a bit longer.

Restructure your debt.

If you have a business loan, credit card debt and a line of credit all piling up, you can work to restructure those repayment agreements to get better, lower payments each month. You can also stretch out the payment terms to give yourself a little release in cash outflow in many cases.

Reduce your expenses and spending.

The biggest expense in a company is their payroll. In a turnaround situation, payroll will most likely take a cut. If you’re going to start letting people go or instituting temporary pay cuts, it needs to be with a strategic view of the future.  Employees rely on business owners for their livelihoods, so business owners must figure out how to reduce payroll but remain committed to their employees.

In fact, for all these solutions there needs to be a strategy attached. Not having a proactive approach to cash flow management with a cash buffer of at least three months is how this storm set in to begin with.

But how do you get back to shore without going into more debt? And if you’re going to take on more debt, how do you make sure that you’re not putting money into a black hole? Ask yourself, is this a viable, sustainable strategy that will help turn the company around?

Cash flow consultants, like me, take a deep dive into your books and strategize ways to limit liability, offset debt, increase profits and keep your cash flowing. Following a review of your financials, I provide you with the tools and education needed to feel totally empowered while making informed business decisions regarding your company’s cash flow.

Dirty Little Secret of Cash Flow
If you find that your business has descended into a cash flow storm, the problems actually started 30 to 60 days ago, and your current cash flow management approach has failed you. Cash flow squalls and storms begin brewing months before they actually set in, and there are ways for you to see them on the horizon and steer clear in the future.

My Dirty Little Secret to managing cash flow is using a practical, eyes-to-the-future approach instead of living in a reactive state where you are putting out fires every day. One of the best ways to remain proactive is ensuring that your business has enough cash on hand to run for three or more months, not just a few weeks or less.

Whether you’re looking to establish a strategy for maintaining good cash flow now, or you’re developing your process for getting out of debt or salvaging your business, you need a sustainable plan that leverages the right resources.

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