6 Ways to Deal with a Cash Drought

What to do when your cash stops flowing

Sometimes it can feel like someone’s turned the tap off on your cashflow – we’re exploring what to do when this happens to get the cash flowing again.

Review your budget and cash flow statement

It’s important to get a clear picture of exactly what has happened and what you’ve got planned for the future.  So get your accounts up to date (make a promise to yourself to keep them up to date for the future) and have a honest look at your business.  If you don’t have a budget or cash flow statement (read here are to why they are important) ask your advisor to help you put one in place

Are you being a ‘banker’

How much money do your customers owe you?  Are you invoicing them promptly and do you have payment terms?  Who is outside of your terms?  Review your Accounts Receivable to get a clear picture and decide how you’re going to approach the late payers and who you’re going to contact first.  Then follow through and collect that money.

Is anyone being your bank? Submit applications

Look at your Accounts Payable – how are you doing?  Are you paying everyone on time?  Who do you think might be open to negotiate their terms with you?  Think about what would be your ideal terms, why would your supplier negotiate with you (are you a large customer, do you have a good payment history?) get your strategy for negotiation in place and make that call.

Are your overheads extravagant?

Review your overhead expenses (rent, advertising, contractors) do you know how to tell when you’re getting full ‘value’ out of these expenses?  Do you think there are any that you could cut back on?What’s ‘out the back’?

What’s ‘Out Back’?

Review your assets and equipment – all these items should be generating revenue for you at some level.  If there is equipment sitting idle, consider whether you really need it as perhaps it would be better to convert it to cash.

Review your ‘top line’

It’s always better to focus on bringing in more sales than setting the razor gang loose on your business.  But it’s important to firstly ensure that what you’re selling is profitable.  With that in mind, review your margins, consider price changes and ways to incentivise your customers to pay you more quickly (e.g. discounts for upfront payment) and ways that you can restructure what you do to allow you to do more with less (i.e. scale)

All of the above, together, will help you get on top of your cash flow and ensure that your business can take advantage of any new opportunities.  The process will also help you to start thinking about the factors that drive success in your business (e.g. number of machine hours, days it takes to get paid, average customer value) and how you can measure and monitor these in your business.

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