In business, cash flow is just as important as profit. If your business is a car, then cash is the fuel in your engine; when it runs out, you’ll stop moving. A study by the U.S. Bank found that 82% of failed businesses cited cash flow problems as one of the main reasons behind their collapse. Therefore, it’s essential that you prepare for cash flow problems and understand how to survive a slump.
1) Annual Discounts
When cash is tight, it’s worth looking for ways to get a significant inflow into your business. One way to do this is to offer your customers an attractive discount for an up-front annual payment. For example, you could offer them one-month free when they pay a year in advance. This will give you a big cash injection that can help you to get moving again.
2) Line of Credit
A line of credit is essentially a hybrid between a credit card and a bank loan. This style of borrowing has many benefits and can be a godsend when you run into cash flow problems.
Much like a credit card, a line of credit is a preset amount of money that a bank or credit union has agreed to lend you. You don’t actually have to use it until you need it. You can borrow money at any time and pay it back either immediately or in increments. A line of credit usually has a higher limit than a business credit card. As with a bank loan, interest is charged as soon as money is borrowed.
The flexibility of a line of credit makes it a great solution for smoothing over cash flow issues. The best time to organise a line of credit is when your company is in good financial health because this puts you in a better position to negotiate good rates and terms.
3) Cut Down on Unnecessary Expenses
When cash is tight, it’s worth reviewing your bank statement and looking at which expenses you can eliminate. Getting rid of costs that don’t drive value can really improve your situation. For example, you may be paying monthly software subscriptions, when the free version is sufficient for your needs. You also may still be forking out for forgotten-about products that you no longer use, or overpriced services when you may be able to get a better deal elsewhere.
4) Shorten Payment Cycles
Many businesses offer 30, 45 or 60 day payment cycles because that is simply the way things have always been done. However, in the digital age, such long payment cycles are no longer necessary. Nowadays, you can send your invoices via email so that your clients receive them instantly, and electronic payments mean that you no longer have to wait multiple days for cheques to process. Shortening your payment cycles means that cash lands in your bank account faster, and can thus put an end to a cash flow slump.
5) Reach out to Existing Customers
If your cash flow slump is due to a shortage of sales, it’s worth re-engaging your existing customers. More often than not, customers don’t stop buying from you due to dissatisfaction; they simply become disengaged because you fail to nurture them adequately. It is dramatically cheaper to retain an existing customer than to acquire a new one, so during a cash flow slump you should focus your marketing efforts on your existing customers. Be sure to nurture them via social media and email newsletters, and offer them an attractive deal or discount to re-engage them.
6) Stay Motivated
Last but not least, it’s vital that you stay motivated during a cash flow slump – now is the time to work harder than ever. Surviving a cash flow slump is about creativity, communication and hard work. Although slumps can be demoralising, it’s vital that you stay motivated and work to use the above strategies to solve your money problems so that your business stays afloat.