Shortfalls are an unfortunate part of life. The ups and downs of the business cycle mean that even well-managed companies can occasionally find themselves short on cash. Luckily, several strategies exist to help you reduce the risk of a shortfall. When one does happen, you can explore the following four innovative ways to right the ship and steer back toward solvency.
Raise Cash Quickly
Image via Flickr by kevin dooley
Another way to fix your shortfall problem is a fast cash injection into your business. You can raise your prices or hold a sales event that will encourage your customers to buy more of your products.
A small business line of credit with an online lender can be a faster alternative to a loan from the local bank. These lines of credit are specifically designed to help a business bridge a short-term deficit or clear a cash hurdle barring the path to growth. Peer-to-peer lending is another way to get a loan at a favorable interest rate through online matching services that operate with lower overhead.
Stay on Top of Your Payments
You need to make sure that you’re paying your suppliers and that your customers are paying you. Good bookkeeping is essential to ensuring that bills get paid on time. However, AccountantsWorld has found that more than 50 percent of small business owners spend less than 10 hours a month on accounting work.
Try to start a system to mitigate the risk of unpaid debts. In a pinch, invoice factoring, a way of getting outstanding invoices collateralized, is a way to turn accounts payable into immediate cash.
Know What’s Coming With a Cash Flow Forecast
Have your accountant prepare a cash flow forecast. This forecast can be as simple as a spreadsheet that keeps track of money earnings and expenditures each month. With a cash flow forecast, you can know what to expect ahead of time and act accordingly.
A forecast provides the added benefit of allowing you to measure your business’s performance against projections. If you fail to reach the numbers predicted in the forecast, you know that you’re leaking money somewhere.
Reduce Your Business Costs
If you do meet a shortfall, the simplest way of getting back into the black is reducing your business costs. Curb new spending, delay investments and raises, and limit all unnecessary expenditures. No business can function forever on an austere budget, but surviving briefly on minimal staffing and equipment can see a business through lean times.
When it comes to debt owed to suppliers, you can often negotiate a more forgiving payment schedule until your business is back on its feet, especially if you’ve been a reliable customer in the past.
Shortfalls happen, but if you stay alert and informed, you can make sure they’re infrequent and relatively painless. With vigilance, planning, thriftiness, and creativity, you can know ahead of time when you and your business will need cash, plus you can know where to go to get the cash you need.