Feast or famine: One week you’re full of nervous excitement about the amount of work you have on your plate. The next you’re twiddling your thumbs and wondering if you’ll ever be busy again. Don’t panic! There are a few steps you can take to bring stability to your business cash flow and finances.
Cash flow is a top concern for businesses of all sizes according to a 2016 State of Small Business Report. Without a steady paycheck, keeping up with your monthly bills can be a perpetual source of anxiety. But business owners must also deal with the long-term uncertainty that comes with the feast and famine cycle. How do you prevent it happening again? How will you deal with the eventuality of an even worse famine down the road?
Here are some things you can do now to immediately overcome the cash flow problems, including some steps you can take to prevent them happening again.
Immediate Cash Flow Famine Fixes
If you’re dealing with short-term cash flow problems, such as a client dragging their heels in paying you or unexpected expenses, there are several financial lifelines that you can draw on:
Get a business credit card
Useful if you know you can pay it off in a timely manner. It can also help you build your business credit score.
Draw on a line of credit
If you’re experiencing fluctuating cycles on a regular basis, it may be beneficial to talk to your bank about setting up a line of credit. This can be borrowed against when you need the cash and paid back when you don’t. However, excessive borrowing against a line of credit could get you into an even worse pickle if you can’t pay back on time. You’ll also incur monthly fees, even if you don’t borrow against your funds.
Consider invoice financing
A useful option for those who don’t have the luxury of savings or don’t want to get tied up with a line of credit is invoice financing. Not to be confused with invoice factoring, invoice financing services, like Fundbox, can help businesses overcome cash flow gaps by providing you with immediate access to the cash you’re owed from your clients. 65% of small businesses are affected by late payments, which can lead to serious cash flow problems. Fundbox offers a simple way to fix this problem. A quick online process lets you pick the invoices you want to advance for a small fee. You can even choose to clear partial invoices. You then have 12 weeks to repay (or sooner, without penalty). This gives you access to cash you’re owed when you need it, often as early as the next business day.
Cash Flow Famine Prevention Strategies
Short-term fixes are good to know about, but if you’re to prevent cash flow problems from becoming a recurring concern, consider some of these famine prevention strategies—even if you’re in the midst of a “feast”.
- Forecast the feasts and the famines
If you’re looking for stability in your finances, consult your cash flow forecast. If you don’t have one, create one. Your forecast is a projection of when cash comes in, when it goes out, and what you’re left with each month. It’s an essential financial statement that can help you spot potential dry spells and put a plan in place to mitigate them (such as stepping up collections, cutting back on expenses, securing alternative financing). Once you’ve got one in place, here are some tips for improving the accuracy of your cash flow forecast.
- Build a cash cushion during the good times
One way to stay ahead of cash flow problems is to maintain a financial backup plan, usually in the form of savings. This isn’t always easy, especially if you worry about not having enough cash in the first place. Try to start small, increase your contributions over time, and use your cash flow forecast to inform your savings plan. Here are some more tips on stemming cash flow issues with a business savings account.
- Prioritize good invoicing habits
Getting paid on time begins with eliminating bad invoicing habits such as invoicing once a month, using paper invoices rather than electronic ones, not chasing late payments, or not having a process in place to deal with tardy clients. Here are six ways to streamline your invoicing
- Make time for marketing, all year-round. Marketing works best when it’s planned and sustained. Set aside time each week to plan your activities, create great content, and write and schedule blogs, emails, and social posts.
Hopefully these tips will help you overcome a lot of the stress and financial pressure that comes with the feast or famine cycle. How do you beat the feast or famine cycle in your business? Leave a comment below.
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