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Crunching the Cash Crunch

5 strategies to survive hiccups in your business bank account
April 22, 2002
URL: http://www.entrepreneur.com/article/51182

Q: What should I do when my business is strapped for cash?

A: Every day, businesses of all sizes and levels of success wake up to find themselves in the midst of a cash crunch. As scary as this can be, it usually is not a death sentence, and some of the most successful companies around still find themselves in crunches from time to time. The secret is to manage, or "crunch," the crunch so that it neither impairs nor compromises the day-to-day operations of your business. Here are tips on how to crunch the crunch:

Talk to your bank. Here's a hint: It is in your bank's best interest for you to grow and be successful. You've seen the commercials about low-interest credit lines and free advice. They offer them for a reason, and it's to keep their customers afloat and happy. If you think your bank's not being accommodating enough, don't be afraid to look around. In most cities, there are probably at least five other banks that would love your business.

Incentivize your customers. One of the hardest parts of running a business is getting your customers to pay on time. Unfortunately, too often they don't, and that can leave you very prone to a crunch. However, if you incentivize customers, not only do you increase your chances for getting paid on time, but you might even get paid early. For example, customers are usually given a 30-day grace period to pay a bill. However, what if a company were to offer an additional 2 percent off a future purchase for any customer who pays their bills within 10 days? The customer receives a discount for simply paying a bill that they were going to have to pay anyway. Meanwhile, not only does the company get paid, but it gets paid early--which helps to ensure positive cash-flow continuity and perhaps an additional 20 days of interest on capital. Furthermore, assuming the service was satisfactory; the 2 percent discount should incentivize the customer to purchase from the company again.

Lenders, too, are experiencing cash crunches; we'll help you survive them without getting pinched out of your valuable capital.

What drives cash flow in your business? Learn all about it with Bill McGuiness' Cash Rules: Learn & Manage the 7 Cash-Flow Drivers for Your Company's Success.

Sell and lease-back owned assets. This is a trick that many companies utilize to survive a short-term cash crunch. They sell some of the assets they own outright and then immediately arrange to lease them back. This is almost the corporate equivalent to refinancing a home and can be coordinated through a bank or a leasing company. The company receives what amounts to a favorable loan with a better payment structure while effectively retaining all their assets in a rather simple, painless manner.

Clear out excess inventory and unused equipment. Take a look around and clean out your storage rooms. Guaranteed there are valuable, working products in your company's possession that are rarely, if ever, being used. With the Internet, it has never been easier to find a willing buyer and receive immediate cash for a piece of equipment that is not benefiting your production in the least.

Don't panic. Last but not least, remember: Virtually all successful companies are destined to go through a crunch at one point or another. It is how these companies handle the crunch that separates the survivors from the what-might-have-beens. Take a deep breath and assess the situation, then review all your options and make a plan. A clear focus can go a long way toward crunching the crunch.

Ian Benoliel is the CEO of NumberCruncher.com Inc., a developer of budgeting, manufacturing and management software for entrepreneurial businesses. NumberCruncher combines its accounting and finance expertise with technological know-how to deliver software that is affordable and easy to use, yet sophisticated and powerful. More information on the NumberCruncher's products and services is available at www.numbercruncher.com. Ian has nearly two decades of business, accounting and financial consulting experience. He has advised corporations on business plans, financial projections and accounting computer systems.


The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.