9 Strategies For Surviving A Cash Flow Crisis

Capital is the most significant resource for the sustainability of a business. Cash flow is the amount of money entering and going out of the business during a given period. Monitoring cash flow is an ongoing process in every organisation as it helps to make informed financial decisions. Profits, losses and cash flow must be measured at all times to understand the financial standing of the entity.

Business owners strive to maintain a positive cash flow, which ensures that more money flows into the business than what is going out. However, it is impossible to keep it that way because growing businesses require a lot of capital for marketing, distribution, recruitment, training, research, logistics, salaries, etc. Preparing for periods of low cash flow that can prove fatal for the organisation is imperative. So, here is a list of 9 strategies to help businesses survive a crisis affecting the cash flow.

1. Make Bill Payments from Savings

Every business has to keep track of the accounts payable to know how much money is being spent. Entrepreneurs must ask their bookkeepers to ascertain the estimated amount to be paid to suppliers, the landlord, and employees every month. They make this projection in the monthly budget, and the expected amount must be set aside from the savings.

Entrepreneurs who have recently purchased a business for sale in Melbourne must start building a cash reserve for the rainy day. These recurring expenses can become challenging to pay during months of low sales. Thus, utilising the cash reserves during these times is ideal to avoid a negative cash flow. It will ensure that the money coming into the business is higher than the amount going out.

2. Boost Profits by Improving Sales

A cash flow crisis can be thwarted by taking strict measures to increase sales. The first step is to identify the reason for the low sales in a given period and find solutions to get rid of it. Getting customer feedback and conducting a SWOT analysis of the organisation can help determine the weaknesses and threats.

Assessment of the existing processes also aids in identifying the redundant methods that are consuming time, effort, and money. The cash flow automatically improves when the business owner eliminates such processes and pays attention to tasks generating profits.

3. Secure Funding to Increase Cash Flow

When the business has more expenses and low income, it needs more capital to sustain itself. In such a scenario, business owners can approach investors or banks for small business loans. However, managing debts during a cash flow crisis can be challenging.

Thus, you can opt for a line of credit with a fixed limit, allowing the business owner to draw an amount whenever required. It offers more flexibility than a business loan. However, it has a lending establishment fee and a monthly loan account fee, so ask your accountant to identify the best financing option for the business.

4. Enhance Your Income

Another way to make sure that more money stays in business is to step up invoicing. Make sure invoices are sent as soon as possible with more than one payment option and link to payment gateways. Also, you can offer a small discount for early payments that can improve the frequency of receivables and boost the business's income.

Find customers who have not paid and follow up with them to get your money. If they cannot pay, you can ask for partial payments to ensure some income. You can also ask your clients to pay half the amount before the delivery of the products and the rest after receiving the goods. It can help you survive your cash flow crisis.

5. Delay Your Payments

Businesses established for some time and have forged trusted relationships with suppliers can take advantage of their goodwill. They can ask their suppliers if they will allow deferred payments until the business is stabilised or to make payments after the due date.

It aids the organisation as less money flows out of it. However, use this approach only when the cash flow is low and you need the flexibility to bring it back to a healthy state. It will keep your relationships intact for a long time.

6. Reduce Unnecessary Spending

When facing a financial crisis, business owners must cut down their expenses. It can be done by opting for cost-effective measures instead of cost-intensive processes. These include shifting to affordable digital marketing rather than traditional marketing. You can ask your employees to work remotely to reduce energy costs and other office expenses.

You can move into a new office with affordable rent instead of using a fancy space that is not utilised thoroughly. Also, using free online tools aids in making the processes more efficient and go paperless to avoid spending on stationery. Another cost-cutting measure includes getting rid of company mobile phones and landlines and using Skype, Zoom and Google Hangouts for calling and virtual meetings.

7. Increase Your Prices

Raising the price of your product helps to increase income. However, it cannot happen out of the blue. You need to prepare your buyers for the change, so they do not turn away. The hike can be justified by increasing the package size or adding some new features to the product.

It is essential to communicate the price rise to the existing customers with a valid explanation to allow them to accept it. The idea is to make them feel that they are getting value for money, so make sure to talk about the enhanced quality of the products.

8. Start Selling More to Loyal Customers

An effortless way of increasing sales and profits is to sell more to your loyal customers. It is easier than finding new customers and more cost-effective. There are two simple ways of achieving this goal – upselling and cross-selling. With upselling, businesses try to sell high-priced products to their existing buyers to generate higher revenue.

The cross-selling method involves selling more products to the same buyer by informing them about complementary purchases that will add value to their item. For example, if they buy an LED TV, you can offer speakers. The best part about buying a business for sale in Melbourne is an established customer base that can be utilised in times of financial constraints.

9. Manage Your Inventory

Inventory management is one of the best ways to manage your cash flow. The first step is to assign a supervisor to the task who ensures that you do not order more stock than required. You can follow the just-in-time system and get rid of ordering in advance. The stock nearing expiration must be sold off quickly by offering discounts or bundle offers to customers to avoid wastage.

Make sure the supplier sends the stock on time and order should be based on the sales projections prepared by the accounting team. You can use a cloud-based inventory management software to automate the process and reduce costs further.

Conclusion

A cash flow crisis can occur without warning and make your business suffer. If you do not have enough cash reserves to survive the phase, you must follow the strategies given above to stay afloat.