You know what they say about the best-laid plans? It can seem like that goes double for small and midsize businesses, with unexpected expenses often serving to derail plans. While you may have done everything right on paper to get your books and bank accounts in tip-top shape, financial surprises will invariably come along. To ensure that your company can tolerate such expenses, it's important to be prepared to expect the unexpected.
While you may not be able to predict when an unexpected cost will pop up, you can often predict what type of cost your company may face. Cash flow is the lifeblood of a business. Every successful company needs a steady source of income and cash on hand to pay bills and make payroll. Unfortunately, many business owners struggle with cash flow problems. Often, it's through no fault of their own, but it's important to know how to effectively deal with the factors that are stopping the flow.
Cash flow doesn't have to be complicated. Indeed, most cash flow problems have common causes. Many businesses end up in a cash flow crunch due to unexpected expenses (for example, costly repairs to equipment, replacing malfunctioning technology or a natural disaster) or too much money going out each month (such as ongoing expenses that have quietly crept up to an unsustainable level). Resolving a cash flow crisis requires that business leadership take a renewed, vigorous look at their ongoing cost structure.
While there is no way that small and midsize businesses can plan for everything, the ones that position themselves to expect the unexpected will be the most likely to not only survive surprises but to rise above them.
Here are a few key tips and insights on how to escape from a cash crunch:
Identify the Cause
What is the driving force behind your cash flow shortfall? Is it customers who are slow to pay their bills? Have you had unexpected expenses? Are your sales down lately compared to previous intervals? Were your cash flow projections overly optimistic?
Cash crunches don't really materialize out of nowhere, and there's usually an operations-related reason for your business's cash flow problems. But before you can rectify the situation and prepare for the future, you need to identify the exact cause of your cash crunch.
Accelerate Your Collections Activities
One of the most common causes of a cash flow crunch is slow receivables. If your customers are slow to pay their bills, it can result in cash flow problems for your business. One of the best ways to resolve a cash flow crunch is to get on the phone and start checking in with your customers and ask them to simply pay their bills. If you have a standard process in place where customers are expected to pay invoices within 30 days, and then overdue payments get flagged for follow up after 60 or 90 days, consider moving up that follow-up step and call everyone sooner than they'd normally hear from you. Many times, customers are happy to pay their bills and they just need a friendly reminder.
Ask for New Payment Terms
Cash flow is often a matter of managing accounts payable and accounts receivable to make sure plenty of money is coming in without sending too much money out. One way to ease a cash crunch is to ask your creditors for a better deal on paying your bills, while also asking your customers to pay their bills more promptly. Consider changing your payment terms. For example, instead of asking for Net 30 payment terms on your invoices to your customers, ask them to “pay within seven days," or say that “payment due upon receipt." Just a simple change of wording might open up some faster payments. Also, ask your vendors if they would accept Net 30 payments. Clarify expectations to make sure you're not paying your own bills unnecessarily quickly.
Get Access to Capital
Cash crunches can be especially nerve-racking for small business owners that do not have adequate access to capital. Sometimes you might need to borrow money on a short-term basis in order to make payroll and pay rent, and keep your business running until your next big paycheck arrives.
Here are 8 small business funding options to consider in your quest for capital. But the trick is, to plan ahead. As the saying goes, the worst time to look for a small business loan, is when you need it...
- Business Expansion Loan - Designed for prime businesses with better risk profiles, our business expansion loan is an extended-term loan with rates ranging from 9.99% - 36%, terms of 18 to 24 months, multiple payment options, and loan sizes up to $250,000. It’s large-scale growth capital if you're looking to invest in bigger projects, with the same speed and simplicity LVRG is known for. GET STARTED
- Cash Flow Loan - Type of debt financing, generally for working capital, using the expected cash flows that a borrowing company generates as collateral for the loan. You’re essentially borrowing from cash that you expect to receive in the future by giving the lender the rights to a predetermined amount of these receivables. Get up to $2 Million in as little as 24 hours, regardless of credit! LEARN MORE
- Invoice Financing - We’re helping thousands of business owners and freelancers overcome cash flow gaps by advancing payments for their outstanding invoices. We can deliver the funds as early as the next business day by purchasing your outstanding invoices without interfering in your relationship with your customers. Instead of waiting 30, 60 or 90 days to get paid, click any of your outstanding invoices to get the amount transferred to your bank account instantly and securely. Pay salaries, buy equipment, travel for business, and more. You're free to focus your time and energy on maintaining and growing your business, not your invoices. Peace of mind guaranteed. LEARN MORE
- Revenue Based Financing - Instead of a business being required to pay fixed interest payments like a typical bank loan, a revenue based loan is paid with a percentage of revenues. With loan amounts up to $2 Million dollars and funding in as little as 24 hours, it helps you grow your business and it does not saddle you down with long-term, highly encumbering debt. LEARN MORE
- Small Business Line of Credit - A small business line of credit provides flexibility that a regular business loan doesn’t. With a small business line of credit, you can borrow up to $100,000 and pay interest only on the money borrowed. You then draw and repay funds as you wish, as long as you don’t exceed your credit limit. Need to manage cash flow? Buy inventory? Pay for a surprise expense? Then a business line of credit makes sense. GET STARTED
- Small Business Loan - Get up to $2 Million to grow your business in as little as 24 hours. From purchasing inventory and equipment to remodeling and advertising, small businesses need capital for many reasons. Our small business loans may be used for any business expense, even if you just need an influx of capital to boost your cash flow. We offer both fixed and flexible repayment options, customizing your funding to meet your business's cash flow model. LEARN MORE
- Small Business Term Loan - Small business term loans can get you the money you need to bridge cash flow gaps, handle emergencies and unexpected expenses or take advantage of a business opportunity. Funding amounts from $15,000 to $250,000 and terms of 3-24 months, a term loan from LVRG is small business capital for big business growth. GET STARTED
- Working Capital Loan - At any stage of growth, fast, flexible funding is essential to the continued success of your small business. Our working capital loans feature 6 to 18 month terms and fixed payment options to accommodate your specific needs, so you can focus on what you do best, running and building your business. GET STARTED
Cash shortfalls happen. The month you need to pay out for a ton of new inventory could be a naturally slow month for revenue; the need for major repair work could fall in the same month half of your employees worked overtime. Whether they are due to a slow season, lagging client payments or unanticipated expenses, cash shortfalls are survivable if small businesses look ahead and act early. Call (855) 998-LVRG or click below to pre-qualify.