Any business, regardless of experience or expertise, can fall victim to a cash flow drought. There are numerous reasons for a cash flow problem that have absolutely nothing to do with the management capability of the business owner. Some of the most common reasons include seasonal issues, economic recessions, and customers that pay late. When you find your business in the midst of a cash flow drought, it’s imperative to take action quickly in order to stem the problem.
First, it’s vital that you do not ignore the problem. This will only make it worse. Take some time to sit down and examine your financials. Know exactly how much money you have coming in and how much is going out of your business. Review your own accounts payable and determine whether there are any vendors that can hold off for a while or at least with whom you can negotiate. While you should never get too far behind on your bills, if one vendor does not need to be paid right away, that could help to ease your cash flow burden.
Next, spend some time reviewing your accounts receivable. Are any customers significantly behind in payments? Have you sent reminders? Would offering a discount help customers catch up? While many business owners are naturally reluctant to provide a discount, it should be kept in mind that when you are in a cash flow drought, even a little money coming in is better than no money.
Are there any areas where you could cut back on expenses? If your business is seasonal in nature, perhaps there are some services that you could do without for the moment to help save some money.
Consider whether a cash flow injection would help until you can get a regular source of income flowing again. This is often beneficial for businesses that are seasonal in nature. For example, if you expect things to pick up in the next couple of months, an alternative business funding could be a good way to obtain the money you need to tide things over until your peak season arrives.