Cash flow problems are the most significant reason small businesses fail. Being prepared and facing this reality head-on are vital to avoiding and correcting cash flow problems. It doesn't matter if you are the manufacturer of a product, selling Miami real estate, or publishing a newsletter- cash flow management is a big part of every business. The following tactics can be used before and during a cash flow crisis.
Reconsider Your Pricing Strategy
It may not be the first thing that comes to mind if you are already panicking about cash flow problems. However, strategically planning a price drop or price increase before things get critical can help you avoid the situation down the line.
Consolidate – Reduce Space and Inventory
If you have anything you're not using that's costing you money, get rid of it as soon as possible. If you have something you rarely use that racks up maintenance costs, see if you can lease it or share with another business.
Re-Negotiate Contracts and Long-Standing Agreements
If you have been in business for many years or your suppliers are highly competitive. You may be able to negotiate terms and contracts to lower your overall costs.
Establish a Penalty or Reward System for Invoices
A lot of managing cash flow is scheduling when money comes in and when it goes out. If you collect immediately on a project things will be easier than if you have to wait for it. By introducing a penalty, like interest, for any payments over a specified time period, your clients and customers will be more inclined to pay on time.
Secure Loans and Credit Lines Before You Need Them
It can be hard for a small business (in this case, any company employing 5 or fewer people) to get a loan. Those that do are likely to get $15,000 or less and only if they have a proven track record or significant collateral. These loans and credit lines also take time to establish.
Before your business has a cash flow emergency, contact your local banks. Find one to work with. Establish a working line or credit, no matter how small. The more you work together, the easier it will be to get larger loans in the future and the more you will have access to if you need it.
Be Selective About Extending Credit
Not every customer, no matter how long you have worked together, will remain trustworthy. Have criteria and stick to it. No exceptions.
Keep Funds Liquid
Don't tie up all of your cash in new projects or expansion. Something could always go wrong- and it tends to do so when you are least prepared.
Take Deposits and Allow Pre-Orders
Depending on the products and services you offer, taking pre-orders or deposits in exchange for a product that is still in production or transit can be a good idea. Deposits can also be used to make a place in line or on a waiting list.