How can small business owners deal with a cash crunch?

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Even the most successful business can experience financial difficulties at times. The pandemic has dramatically reduced cash flow for many small businesses, forcing owners to scramble for solutions. Although the government has provided some financial support, there are not always such simple solutions to cash flow problems. Here, small business owners and financial experts discuss how small business owners can manage a lack of cash.

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Identify the root cause

Karen Cate Agustin, business analyst at Investors Club, recommends that when you have a cash flow problem, before you do anything else, “identifying the root cause is key. In my experience at our business, the number one cause of cash shortages is poor management of incoming cash flow. It is common for customers not to pay their bills on time. The best solution to this problem is to encourage customers to pay on time in an innovative way. For example, we have a 2.5% discount policy for those who pay on time. This provides the reason for early payment and creates a sense of urgency, and most customers pay on time. »

Negotiate with suppliers

It’s important to keep the lines of communication open with your suppliers, said digital marketer Ellie Shippey. “If you’ve been loyal to a supplier, chances are they’ll be more flexible and willing to work with you at a moment’s notice. Your utility companies may also be able to give you wiggle room or even lower your bill.

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Sell ​​non-core assets

In a cash crisis, you can also sell non-core business assets to save cash, Shippey said. “In case you find yourself in a tight spot and need to make some quick cash, selling an unwanted item can be a good option.”

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Restoration1 franchise owner Steve Elliott added, “Idle, old and unusable equipment takes up space and ties up cash that can be used more profitably. Long-owned equipment will often have a book value equal to or less than its salvage value, so selling it may result in a taxable gain. This gain must be included in your tax returns. However, if you have to sell below book value, you will incur a tax loss, which can be used to offset other trading gains.

Accelerate the pace of your receivables

Your company’s financial problems will be solved as soon as the money starts coming in faster, said Jason Porter, senior investment manager at Scottish Heritage SG. “Start by making a product available for pre-order and accepting it before production begins. Additionally, you can request a deposit or partial payment from new customers.”

Change your invoice collection method

Another strategy for improving cash flow is to modify your bill collection to increase cash flow, according to Bill Ryze, Tennessee Certified Chartered Financial Consultant and advisor to Fiona’s board of directors. This may look like sending invoices in a shorter time frame or shortening payment terms. “For example, if you send a weekly invoice with a repayment period of one month, you can switch to sending the weekly invoice with a repayment duration of two weeks. You can explain the situation to the customers with whom you have built a solid relationship and ask for prompt payment.

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Scott O’Brien, Head of Sales at PPC Ad Lab, added, “The longer you’re out of touch with a customer, the less likely you are to collect the debt. Consider offering incentives to consumers who pay their bills promptly. Also, make it as easy as possible for consumers to pay you.

Reduce your costs

During a cash crisis, companies need to be extra vigilant when it comes to spending, said Lulu Albanna, co-founder of WRC Media. “When you’re short on cash, your business expenses take precedence over everything else. Reduce your expenses to those that are necessary to run your business and generate income.

Renegotiate with lenders

Once you realize a cash shortage, consider reaching out to your lenders, Ryze said. “One thing I’ve noticed with my clients who are small business owners, they don’t know that lenders are always willing to renegotiate loan payments before you start missing your payment. Tell lenders about your challenge Current cash can help you find a new repayment plan, but if you wait to miss a payment, it could make problems worse depending on your credit terms.

Explore other financing options

A good place to start is to explore all of your financing options, said Andrew Gonzales, president of “There are many types of loans and financing available to small business owners, so be sure to research your options and compare interest rates and terms,” ​​Gonzales said.

Some loans for small business owners include the SBA 7(a) loan, SBA 504 loan, and microloan.

There are other loans that exist just for this kind of problem, according to Erik Wright, owner and CEO of New Horizon Home Buyers. “Quick working capital loans are a way to solve business cash flow problems. Short-term working capital loans are easy to obtain and can be funded in as little as one business day. Compared to many other loan choices, these loans have a higher annual percentage rate (APR). Since a company is borrowing money for a shorter period, the overall cost of capital can be cheaper than longer term options with a lower APR.

Another option, according to Eyal Pasternak, real estate investor and founder of Liberty House Buying Group, is to obtain a business line of credit. “[It] will not cost you much in the future, because you will only be liable for interest on the unpaid payment and not on the entire credit limit, as a credit does. If you have good credit, you will face a lower interest rate along with many other small business incentives.

Prioritize sales

Maybe a cash crunch is the time to set sales targets to generate revenue, said Ronald Williams, founder of BestPeopleFinder. ” That’s what we did. There is no point in thinking only about cost reduction; revenue needs to be increased. Therefore, define an action plan with the values ​​that will be the objectives of your company and how you intend to achieve them. Keep in mind that in times of crisis or cost control, you also have to invest.

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About the Author

Jordan Rosenfeld is a freelance writer and author of nine books. She holds a BA from Sonoma State University and an MFA from Bennington College. His articles and essays on finance and other topics have appeared in a wide range of publications and clients including The Atlantic, The Billfold, Good Magazine, GoBanking Rates, Daily Worth, Quartz, Medical Economics, The New York Times , Ozy, Paypal, The Washington Post and for many commercial customers. As someone who had to learn a lot of her money lessons the hard way, she enjoys writing about personal finance to empower and educate people on how to make the most of what they have and how to live. a better quality of life.

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