Running out of money?
Cash flow management can be the most daunting aspect of owning your own small business, especially for novices. Even if your business looks good on paper, you may not have enough cash on hand to cover your bills.
Did you know that 80% of entrepreneurs who start a business fail within the first 18 months? Those are strong odds to beat. Insufficient operating funds is 1 of the 7 main reasons small businesses fail.
But if you’re out of money, what can you do? Isn’t there a way you can turn it around?
There are several, actually. Many will only work for certain types of businesses. To see whether your small business is one of them, take a deep breath, relax your shoulders, and read on.
Order of Priority
There’s out of money then there’s out of money. One means you can’t pay all your bills. The other means you’re homeless and begging for food.
No business owner likes to be in the red, but it’s more common than you know. Businesses go through a natural ebb and flow with their economy.
If you’re under the gun but still have some cash in hand, prioritize your bills. Large companies, such as those who provide you with power, gas, phone and internet, will allow you a few delinquent bills. Only then will they shut off your services.
You can use those months to develop and put in place a strategy to get yourself out of the red. Use your money to pay the bills critical to your success. Let the rest slide until you dig yourself out of the hole.
It’s something no owner wants to do, especially if you’re close to your employees. Unfortunately, sometimes it’s necessary. Can you get by with fewer staff members?
If not, can you cut some hours from their workweek? Can you automate some of your services to decrease the need for human help?
If you do need to cut your staff, be transparent. Tell them why someone must go, and why you chose them. It won’t change your actions, but it may change their response.
Renegotiate with Your Landlord
Some small businesses pay huge sums for rent. Are you one of those owners? If so, you may be able to bargain with your landlord.
Before you approach them, think it through.
What do you know about your landlord? Do you have a good working relationship? Would they be willing to give you a discount?
If not a discount, perhaps they would be willing to reduce your rent in exchange for goods or services? Or perhaps they’d be open to reducing your rent now if you agree to pay the difference three or six months from now.
Consider a Sale
If you have surplus inventory, hold a sale. It’s one way to give you quick cash-in-hand. Take stock of your assets to see what you can liquidate.
Always begin by taking a full inventory. Mark each thing you might be willing to part with. Yes, that includes equipment not normally for resale.
If you own virtual merchandise, like ebooks, e-courses, and the like, run a quick-sale campaign. Don’t be afraid to cut your prices by 75%. Figure out how much you need to pay your bills, and adjust your prices accordingly.
Restructure Customer Payments
If you’ve looked through your cash flow statement and come up empty, you can adjust the way your customers pay. What do we mean by that? Well, let’s take a look.
Payment deadlines: If you run a subscription service or take payment plans, what are you doing about late payments? Are you charging late fees? If not, you’re losing out on a stream of revenue.
Society has already done the hard part for you. Businesses have been using these methods for generations. Your customers already understand there are consequences for late payments. Just be sure to tell them about your new policy ahead of time.
Early Payment Discounts: Have you offered your customers a discount if they pay early? Rather than paying you a monthly subscription service, they may be willing to pay for the entire year upfront. You just have to make it worth their while.
And it doesn’t need to be in one lump sum. Perhaps they pay it off in three months rather than twelve. Or six instead of twelve.
You can play with the terms. The idea is to give you cash in hand right now. For many small businesses, it’s the best option, so consider it carefully.
This avenue depends heavily on what your business looks like on paper. If you show a history of growth you may find interested investors. In most cases, you must also project a lucrative future.
Those projections must be backed by solid evidence. “I think I can make X dollars doesn’t cut it.”
Do you have projects in the works? Other businesses who wish to partner with you? An expansion project coming up that’ll skyrocket your sales?
Get your books in order and solid evidence to back your claims before you hunt for investors. It takes time and a huge amount of effort. If you’re under the gun and aren’t sure about this avenue, then trust your gut.
Small Government Loans
Have you heard of the Small Business Administration (SBA) before? If you haven’t, a little investigation may be well worth your while. The SBA is a government-run organization dedicated to helping small businesses, just like yours.
The goal of the program is to support small businesses with educational and financial help. Small businesses have more challenges because they operate with fewer resources.
Microloans are easier to get than conventional loans. They’re available to businesses which don’t have a track record to speak of or assets to rely on. Here is a list of microloan lenders to get you started.
And don’t forget about their educational resources. The training on small business bookkeeping is invaluable for owners struggling to make ends meet. Any small business owners with an MBA education should at least peruse their training courses.
Finance Your Invoices
One of the most common problems to affect companies that worth with commercial-type clients is slow invoice payments. Large companies and other commercial clients pay invoices in 30 to 90 days. That works great for them, not so much for you.
Many small businesses need to get paid sooner because they have their own bills to pay. SBA courses can help teach you how to navigate those waters long term. You just have to make it through the short term.
Have you ever heard the term invoice factoring before? It’s a method some small businesses use to contend with the 30- to 90-day invoice payment. Essentially a lender advances you the money you’ll receive for your invoices minus a small percentage.
These lenders, called factoring companies, essentially give you a short-term loan. The transaction ends when your customer pays you the invoice in full and you repay the lender. Some businesses use factoring as a revolving line of finance.
Factoring rates typically range from 1% to 3.5% per month. They’re based on the credit quality and line size of the company paying your invoice. You’ll have to speak to someone in person to see whether you’ll qualify.
Finance Your Purchase Orders
It’s easy for a small business to run out of money when they invest all their working capital while fulfilling a big client’s purchase order. Like invoices, purchase orders have long fulfillment and payment cycles. Good for your clients but bad for you.
If you’re using overseas vendors, it’s not uncommon to have to wait over 100 days to get paid.
A highly specialized form of financing exists. One which helps only companies that sell goods, like re-sellers or wholesalers. The method is called a purchase order (PO) financing. Essentially, the lenders will loan you the money to complete your purchase order in exchange for a small percentage of the profit.
Just remember, these lenders are highly specialized. As such, they’re particular about who they’ll work with. If you qualify, it’s a fantastic way to get cash in your pocket now.
Grants to Combat Your Cash Flow Management Woes
Didn’t anyone ever tell you about grants? The federal government is among the largest distributors of small business grants. They support a broad range of enterprises, from child-care services to environmental conservation.
Grants.gov is a database with an exhaustive list of grants administered by government agencies. To find out if you’re eligible, head to their website. Once there, click on the “Apply for grants” link under the “Applicants” tab on their homepage.
What about the SBIR and STTR grants? Have you heard of those? Those acronyms stand for Small Business Innovation Research and Small Business Technology Transfer.
The SBIR and STTR give grants for research and development. They give priority to scientific research and technology innovation. They help connect universities, research centers and small businesses with government agencies.
Other Less Known Grant Options:
- Economic Development Administration
- Small Business Development Centers
- FedEx’s Small Business Grant
- National Association of Self-Employed
Grants may require a lot of time and effort to fill out the paperwork, but they’re well worth it. If you succeed, you never have to repay that money.
Well, did you come up with some solutions for your cash flow management problems? Notice we said solutions, meaning multiple. It’s always best to devise a plan with several options.
The first step to success is to promise to never give up. You may be down, but you’re not out. If your business goes under, let it be caused by the economy or poor planning, but never from lack of determination.
If you found this article helpful, be sure to take five minutes to check out our other articles!