Business and Personal Finance: What to Do When Cash Runs Low

Always Know Your Cash -What to Do When Cash Runs Low

If your cash supplies seem to be dwindling, don’t panic. There are plenty of steps you can take to improve your cash situation, both immediately and for the long haul. For quick infusions, you (and your co-owners) may have to dip into personal funds or tap family and friends for instant loans.

When the situation allows for somewhat longer short-term solutions, you have more options open to your company. One of those options is called factoring, which means selling your accounts receivable. Factoring gives you speedier cash flow than waiting for your customers to pay, but at a price: you can’t sell those receivables for full face value, so you’ll get less money than if you waited for the normal collection cycle to kick in. Along those lines, you can also sell fixed assets, such as machinery, equipment, and buildings, and then turn right around and lease them; this common business deal is called (unimaginatively) a sale and leaseback. You get a big hit of cash right away and deductible lease payments going forward.

Long-term strategies should be implemented as early as possible, because it can take a while for them to have any effect. The simplest is to talk to your vendors; if you aren’t buying from them on credit, it may be time to start. Start these talks with some knowledge under your belt, including what really goes on in the industry and in your area, not just what shows up as standard payment terms. Your suppliers want you to buy from them— you’re their customer, and they can’t profit without you. It may take a little negotiation, but if extending credit is a crucial part of keeping your company as a steady customer, you’ll probably get what you want. (For more information about dealing with vendors, see Chapter 12).

Other long-term strategies include things such as re-evaluating your inventory mix. Think about dropping (at least temporarily) any products that are tying up your cash flow. Look for items that represent a relatively large cash investment and don’t move out the door very quickly; replace them with faster-moving, less cash-intensive (on your side) merchandise.
You can still place special orders for customers who want the products you stop carrying regularly, but ask for an up-front deposit. Finally, the best thing you can do to improve your long-term cash flow is to employ a combined focus on growing sales and improving collections; you need to have both for sustained profit growth and a comfortable cash balance.