Sometimes we find we are cash strapped regardless of how business is booming. In fact, you can have a very successful business go under simply because it is bleeding to death. Cash is essential to the day to day running of a business, and unfortunately, revenue does not always equal cash.
This means the books can look great, sales can be sky high, and you can still flounder. If this is the case, how on earth do you stop it? How do you even realize it is happening before it is too late?
You’ll likely notice symptoms. You just have to recognize them for what they are. For example, if you find that you have a great profit margin but you can’t pay the bills, you likely have a cash bleed.
If you see that you need to make some repairs or invest in inventory, but you have to rely on financing that you cannot pay off quickly, there is wound somewhere. What do you do?
Find the Bleed
First thing’s first. Find the bleed. Where is the cash? You have sales, you have revenue, business is good, so where is all the money? Is it tied up in assets? Maybe it is in receivables. Do you have too many accounts aged too far out? Maybe your debt ratio is too high.
Once you find the bleed you may have to initiate emergency measures to get the bleeding to stop. It is important not to remember that this is just a temporary bandage until you can get some stitches in and get it healed. Don’t stop here, but you have stop the cash from leaving.
If receivables are the problem, consider factoring or selling them. If you have too much cash tied up in high value assets, reassess and determine if you would do better to liquidate some of them.
Once you get the bleeding stopped, you need to come up with a more permanent solution. This will take time. The first thing you have to do is find the root cause of the bleed.
Maybe you need to increase collection efforts or change your credit policies. Maybe you need to reevaluate asset and debt goals.
There may be a need to increase revenue, change prices, or both. No stone should be left unturned and all possibilities should be explored.
If debt is not your problem, it could help with your solution. A line of credit or a cash advance can help when there is an issue with timing. Sometimes you have plenty of cash, it just doesn’t come in before it is needed. This is a fairly easy fix with specific financing tools designed for small businesses.