Get Creative with Cash Flow
In ordinary times, cash is merely king. When sales slump and costs rise, cash can claim a far more grandiose title: emperor of the universe, anyone? No matter how lofty its status or how stressful the environment, keeping cash flowing comes down to two things: accelerating the stream of cash coming into your business and slowing its outgo. But these days, says Tom Long, founder of Solid Oak Consulting, entrepreneurs need to take an especially creative approach to maintaining cash flow. Here are some ideas to get your creative juices flowing:
- Make a careful and detailed cash-flow projection before you decide what, if anything, to do to improve your cash situation. And don't rely on your accounting software to do it for you. Few software packages have the ability to do that job well. Your best bet is an electronic spreadsheet, such as Microsoft Excel.
Personally call people who owe you money to request payment. When the owner rather than an administrative assistant calls to collect, Long says, it gives the matter a particular urgency.
- Don't delay paying your own bills in order to conserve cash. Long says, "All kinds of challenges and problems can occur from that."
- On the other hand, don't pay bills early--unless the seller offers a substantial discount for quick settlement. In that case, paying in 30 days to get a percentage point or two off the total can be well worth it.
- Lease rather than buy equipment--even sell your building and lease it back. That can free up sizable amounts of cash. "Small businesses often want to own," Long says. "But they're not always looking at whether something's worth having."
- Factor your invoices. If you thought of your company as one that didn't have to factor its invoices, think again. Factoring, in which financial institutions buy receivables for a discount and then take over collections, is something large companies embrace more readily than small ones. But it's just another form of financing: "I've never shied away from it," Long says. A variant called purchase-order financing can provide the advance cash you need to handle an unusually large or complex order.