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Trust me when I say that even the strongest businesses will experience a cash flow crisis. Everything could be going incredibly well and then a perfect storm hits - you commit to a capital expenditure, you expand your premises and take on a new lease, a mistake is made on an order which costs you big and one of your clients asks for a payment extension because they are having cash flow challenges of their own.
In between all of this, you have your normal running costs, staff wages, etc. and you know a critical point is coming. What you do next will impact everything from your stress levels to your business reputation.
Sit down and review all upcoming commitment due dates, work out non negotiables which may include staff wages and then determine what areas you can effect temporarily.
Here’s 5 ways you can manage a temporary cash flow challenge:
- Negotiate, review and take temporary or permanent measures with your loan commitments - this may include refinancing/consolidating to reduce commitments or if you have a great relationship with your bank and you have a $5,000 loan repayment due, you could ask to delay this by a month or two. Generally when discussed upfront and if you obtain an approved payment extension, it won’t impact your credit file or ability to borrow in the future. Banks can also sometimes grant temporary overdrafts for generally well performing businesses to solve these temporary problems. Don’t be afraid to communicate with your bank and broker, you’d be surprised what temporary measures are approved every day to take the pressure off.
- If you have supplier payments due, give them plenty of notice and ask for an extension. Suppliers would rather get paid than not so if a temporary extension is what is needed, most will be supportive. Communication is key and will protect your reputation and relationships. The worst thing you can do is just not pay and wait for them to chase you.
- As with the above, you can also contact your landlord. Communicate honestly and respectfully with plenty of notice. A short term temporary payment delay will likely be understood when you have a good history of paying normally.
- Consider a short term cash flow loan such as invoice finance or a term loan. These come in many different forms from overdrafts, term loans, invoice finance, lines of credit, etc. For businesses with clients that pay on 30+ day payment terms, invoice finance can be a great way to solve cash flow challenges as you can get an advance on a percentage of your invoice or purchase order immediately. Speak to a broker about your options as you may need a combination of lenders to get the facilities you need in place.
- Review everything - expenses and the way you engage clients for orders. Cut out unnecessary costs such as unused subscriptions, technology, etc. If you have any large insurance premiums due, consider using the premium funding option to proceed with monthly instalments rather than upfront. If you usually only get a 5% deposit from clients upfront, consider increasing this to help cover job costs/materials.
There’s plenty of things you can do but the keys are awareness, communication and knowing your numbers. Do not stick your head in the sand, be proactive and you will get through it.
We’re here to help - if you want to know how to manage your cash flow better and consider facility options, contact us today.
finance@fortunaadvisors.com.au
