Here are ten useful tips for the small business owner to tide over a finance crunch, should one arise.
Consider present cash flow
You should constantly keep track of the cash flow in your business, and be able to quote the cash balance at any point of time. It is crucial that you know the exact figures of cash inflow and outflow in your business at the present moment, without considering future debts and expenses. Take the time to think of ways in which you can improve on this cash flow.
Study future projections
Prepare the cash flow projections for the near future, and study the cash inflows and outflows in your business carefully. At any point of time, you should have with you cash flow projections for the next six months. This will help you anticipate a cash crunch well in advance, and give you enough time to think of possible solutions to tide over the same.
Re-examine your processes
During a finance crunch, it is a good idea to study every one of your business processes in detail. Determine the repetitive and non-yielding business processes, and eliminate them. This will help you save on time and effort and, ultimately, improve your cash flow.
Keep a just-in-time inventory
Do not maintain a high level of inventory in anticipation of future demand. Maintain an inventory that is just-in-time. In other words, you should keep an inventory level just enough to match your demand, in addition to about a week’s demand worth of safety stock, unless and until you foresee a considerable increase in demand for your product/s.
Try to bargain for longer credit periods from your suppliers, if possible. This will give you time enough to maintain the required level of inventory, activate your sales and step up the cash flow, after which you would be able to repay your creditors more comfortably. However, this step should be undertaken with utmost caution, ensuring that you do not avail of way too much credit than you can repay, and ultimately be drowned in the burden of debt.
Consider expert help
It is a good idea to consider expert help when you are stuck in a finance crunch and see no way out of it. There are qualified business coaches, who, with their professional expertise and experience, can help you devise suitable strategies or offer suggestions to tide you over your cash crisis.
Speed up debt collection
If you have outstanding debts to be collected, speed them up as much as possible. Consider the possibility of not offering goods on credit to debtors who do not pay for them promptly.
Before a sale on credit, ensure that you thoroughly study the creditworthiness of the concerned party, so that you do not end up undertaking a high degree of risk.
Defer your salary
Do consider the possibility of deferring your own salary, and reinvesting it in the business, till the cash crunch is resolved.
Offer creative remuneration
Downsizing your staff during a finance crunch might leave your employees with a bad taste in their mouth. Instead, consider the possibility of talking to your staff, informing them of the cash crunch that you are facing, and soliciting their co-operation.
Consider offering creative remuneration to your employees instead of paying them in the traditional way. For instance, they can be offered a larger pay package from future revenues in return of giving up their present salary for a short period, or be given flexible working hours or a share in the equity of the firm.
Rethink all expenses
During a finance crunch, it is imperative that you rethink all your business expenses. Eliminate all the expenses that are unnecessary and those which are unproductive.
Take the benefit of bulk discounts wherever possible.
Whenever any expense needs to be undertaken, ensure that you study all the options available to you, and choose the one that is most viable in terms of cost. Ascertain that you do not end up paying more money, where you could have done with a lower expense. For instance, if you need to buy some computers for your business, see if you can buy refurbished or second-hand ones.