How to weather a cash flow drought
Content provided by a guest contributor.
In business, as in life, we can’t expect clear skies every day. There are going to be periods where cash flow is tighter than normal, and it may even dry up to a mere trickle. With the right preparation and measures though you can weather the cash flow drought and come out the other side stronger than ever.
Make a forecast for the future
As you can imagine, it is far easier to deal with a cash flow drought if you have prior warning. Making cash flow projections is an important part of running a business. A realistic and regularly updated projection can help you spot any danger areas ahead so that you have enough time to prepare.
Cut unnecessary expenses
This point is obvious but it bears mentioning anyway. As soon as you foresee a cash flow drought you need to cut any unnecessary expenses you can. Some things are vital but some things aren’t. Go through your expenses with a fine-tooth comb to see what can be cut. In some cases you could even just delay an expense until your cash flow improves.
It is not advisable that you forfeit on any payments you owe, but you can call your suppliers and debtors, explain your situation and inquire about alternative payment plans. If you do need to make purchases, opt for payment plans that go easy on your cash flow.
Increase your cash flow
There are numerous ways to get more money coming in. Perhaps you could run a campaign or reassess your marketing efforts. Increasing cash flow isn’t always about creating new business though. Sometimes it is about getting what is owed to you.
Now is the time to get paid. If you are struggling to get paid you can consider debt factoring. This is where you take your invoices to a third party who will themselves pay what is owed to you, and then take it upon themselves to obtain the money – for a percentage of the total cash involved.
Review and revise
Once you have weathered the drought, don’t miss this opportunity to grow. Is there anything you could have done differently to avoid the cash flow problems? Perhaps there is something you could have done to be better prepared. If it caught you unawares then you definitely need to make more accurate and regular cash flow projections.
Take what you have learnt and put in place a strategy for the future. A cash flow drought is not pleasant, but it can make you stronger in the future.
This article was brought to you by WesBank, a division of FirstRand Bank Limited providing equipment finance for businesses to keep running.