It can happen to the best of entrepreneurs – the unexpected cash crunch. Forecasting cash flow accurately is still one of the trickiest things to do when running a brand-new small business.
A lot of businesses ultimately fail because the business owner failed to anticipate an unexpected cash crunch. A minor deficit turns into a crisis, which leads to bankruptcy. But don’t panic – this doesn’t have to happen to your company! If you plan ahead for the unexpected cash crunch, you will be totally prepared for the worst. Here’s how to make sure that cash crunch is just a minor disturbance in your day, not the downfall of your business:
1. Open a Line of Credit
Having an open line of credit means you always have funds you can tap into when you need them, and unlike the loan application process, you don’t need to wait around for approval. You can get a hold of the funds you need instantly. A good example is a credit card. You use however much you need, and you pay it back when your cash flow is back to normal.
2. Offer Discounts
Another way to get through an unexpected cash crunch is to reach out to the people who keep your business running: your customers. Offer discounts or promotions of some kind. If you have a positive relationship with existing clients who regularly utilize your services, consider asking them to pay in advance for work that will be done in the future.
3. Sell Invoices
It may be possible for entrepreneurs to obtain loans secured by invoices. This works especially well if your company works with other businesses that usually take 2-3 months to pay for your services. This arrangement does have a lot of variations, so do some research ahead of time to find out if selling your invoices could possibly work for your small business in an unexpected cash crunch.
4. Ask Vendors
If your business has a positive and long-standing arrangement with your vendors, you may be able to secure vendor financing. Depending on who you’re working with, your vendors may allow you to wait a few months to pay them for the inventory or merchandise being delivered to you. This may include an interest fee, but that can be a small price to pay if it gets you through this unexpected cash crunch.
There are many ways to get through an unexpected cash crunch at your small business, but they all involve one thing: planning ahead. You need to know what your options are, regardless of how well your business is doing. You never know what may happen tomorrow, or next month, or next year. So do your research, make a plan, and keep that in your back pocket. Now you’ll have a specific plan of action if you ever run into cash flow problems in your company. For more guidance, visit our website at www.biz2credit.com, and our consultants can help.