September is National Preparedness Month, an annual government initiative to raise awareness of the importance of preparing for the many types of emergencies that impact us each day. From cyber threats to earthquakes, the threats are very real. Perhaps most worrying of all is that up to 40% of small businesses don’t re-open after a natural or human disaster, while two-thirds don’t have an emergency plan in place. But what about the biggest threat to the livelihood of small business owners? Are you prepared for a cash flow emergency?
A staggering 9 out of 10 small businesses failures are caused by poor cash flow. This isn’t because they weren’t profitable, but because they could not balance the inflow and outflow of cash in their business. Oftentimes, this is caused by an emergency or interruption to the business, late-paying customers, or a busy season that didn’t turn out to be so busy after all.
Is your business prepared?
Understanding how money moves in and out of your business and spotting the warning signs can help protect you against cash flow problems: a cash flow forecast and cash flow statement are key. However, there are a number of things that you can do if an emergency arises.
Fire Up Your Sales Engine
Making an extra sale is a great way to tide you over in an emergency. Start with your existing customers. If you run a service-based business, look for ways to reconnect and work with clients who already know you. Introduce them to new services or remind them of what you have to offer (is there a seasonal element or a topical happening that will motivate them to engage?).
If you run a retail operation, look for ways to shift inventory and release the cash tied up in it. You still need to make a profit, so be smart about any promotions or incentives you run.
Draw on Your Line of Credit
If you have a line of credit, see if your lender can raise the ceiling until you are cash flow-positive again.
Ask Suppliers for a Favor
Your suppliers’ business depends on your business, so work those relationships. See if you can get extended terms or a line of credit.
Collect to Boost Cash Flow
Don’t just rely on sales and purchasing to help alleviate your emergency. Identify your late-paying clients and chase up any late invoices now. You could also preempt any tardiness by sending an email out to clients who are nearing their payment due date and reminding them of quick and easy ways to make their payment on time. You may also consider offering a discount for upfront or early payments.
Here are some more tips:
- 7 Direct Yet Diplomatic Ways to Handle a Slow-Paying Client
- Who Should Have the Job of Collecting Invoices
- 4 Tips for Tweaking Your Invoice Terms to Avoid Late Payments
Look for manageable ways to immediately tighten your belt. Try to cut your salary before you make any staff cuts. If you’re a freelancer or solopreneur, find ways to reduce your personal expenditures.
Close Cash Flow Gaps with Invoice Financing
Invoice financing is an increasingly popular option for overcoming cash flow problems that occur despite your best efforts at financial planning. Invoice financing works by advancing payments against money you’re owed, for a small fee. Whatever your client’s payment terms—net 30, 45, or 90—you can get an advance on that money without your client even knowing about it.
Invoice financing services like Fundbox also have the added benefit of speed. With Fundbox, you can create an account in less than a minute, connect your accounting software, and you’re done. Simply choose the invoices you want to clear, and an advance is made to your bank account as early as the next day. You then have 12 weeks to repay the advance plus the fee without any early repayment fees.
It’s also convenient, prefect anytime you need immediate cash. Just open the Fundbox interface and pick an invoice to clear.