Ravi Chandran
Effective cashflow management will help you if your business runs out of cash, But how can you effective cashflow management when you’re short on cash?
By: Nithila Vijayan
If you are starting out under-capitalised, like most small businesses do, and if you have big growth plans, sooner or later you are going to have cash flow problems. How severe a cash shortfall you have will be dependent on how early you realise that you have a problem, and on how rapidly and aggressively you work to correct it.
The First Thing You Should Do When Facing a Potential Cash Flow Problem
If you are facing a looming cash shortages, the first thing you have to do is to go through every single expense line item in the budget and see what you can totally eliminate. This part of effective cashflow management.
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Then you see what you can cut to shreds. Then if you are still looking like you are going to run out of money, you should go back and make even deeper cuts. That is a big part of effective cashflow management.
When you make these budget cuts, you should print the Budget out and take a big red marker to the hard copy, sit back on a couch, and try to really creatively think of expenses you can cut and burn, before they cut and burn you!
By using a big red marker or by redlining the budget cuts, you can vividly see the changes. This way, you feel like you are making progress. You feel you have some control over the situation, and then your confidence tends to get restored, which is very important.
A big part of getting out of cash flow problems, avoiding trouble, and running a successful business is trying to feel okay about yourself and your ability to run the business even in difficult times.
Speeding Cash Inflow is a strategy for effective cashflow management
The fastest ways to speed cash flow is to try to get paid more quickly. Look at all of the receivables owed to you. Determine whether or not there is some means by which you can receive payments earlier than anticipated.
Get on the phone. Use your most upbeat tone, and try a little honest begging: “We’re a little tight on cash right now, and I would greatly appreciate it if you could pay us.” If necessary, offer small discounts for faster payments or prepayments.
If you are working on custom projects for businesses or consumers, don’t hesitate to ask for progress payments, even if they weren’t part of your initial terms.
Slowing Cash Outflow is another important tactic for effective cashflow management
Decide how serious your situation is, then decide which bills you must pay. Remember, very few businesses of any size pay their bills within the stated terms.
If you owe a particularly large amount of money to one key supplier, be cautious. If you intend to pay some of the bills significantly late, advise it of this in advance. If you are fairly certain as to when, specifically, you will be sending payment, consider offering this information as a promise in exchange for continued credit on new purchases.
Deciding which creditors to pay is crucial for effective cashflow management
Make sure that you, not your creditors, decide who gets paid and when. Don’t be pressured by phone collectors, or by the firms that complain the loudest. Pay those creditors that are most important to the continuation of your normal business operations first.
Some creditors may threaten, but don’t panic. If your account is turned over to a collection agency, this will be the least of your worries. If a creditor does take you to court, the hearing date will be months down the road.
If you don’t know when you will be able to pay a bill, don’t let a creditor push you into making a payment promise. If you renege on a payment promise, the creditor will only become more aggressive. Instead, tell creditors that you have placed them on your payment list. Assure them that you haven’t forgotten about them. Let them know they will be paid as soon as possible, but you just can’t say exactly when that will be.
Non-crucial Creditors
Don’t forget about non-crucial suppliers, but pay these vendors only when you have the extra funds. Again, as you did with crucial creditors, prioritise and pay those suppliers whose continued services or goods are most important to the maintenance of your business.
If you need help with effective cashflow management, you can also speak to loan consultants who can set you up on a path where you can get help for a tight cash situation in a quick and seamless manner. Loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. You should also find out about money saving tips.
Also, check out affordability Tools as they can help you make better financial decisions. Good Calculators can help you ascertain if you should take an equity loan to help better mitigate your cashflow problems.
If you are looking for a new home loan or to refinance, our Mortgage brokers can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore.
And the good thing – whether it is business expansion loans or mortgage loans – is that all their services are free of charge. So it’s all worth it to secure a loan through them for your business expansion needs.
