Business Cash Crisis? Push the Cycle

At some point, every business owner feels it.

Cash Crisis? Take a deep breath and grab the phone

It starts with a tightening of the chest.  Then there’s the ache in the pit of your stomach.  And the fuzzy feeling in your head.

Why?

It’s almost payday and you’re short on cash.

First, breathe.  Stressing out won’t put cash in the bank.  Now, when you can see clearly, let’s get started fixing the problem:  Ask yourself this one simple question.

(Q1) Where is the cash right now?

In order to get the cash into your bank account, you have to know where it is now.  Do you have too much inventory?  Do your customers owe you payments on old invoices?  Or are you staffing up to fill a large order that isn’t ready yet?

You might have cash in several or all of these “hiding places”.  If so, Have Hope!  Getting the cash into your bank may be easier than you think. (And, if you answered “NO!” to these questions, don’t despair: check out some of my other posts… where I’ll address “cash crisis” and better forecasting.)

Getting the cash out from each of these “Hiding Places”  will involve one of two solutions:

• Borrowing against it, or
• “Pushing” your cash cycle a bit faster

Let’s leave borrowing for another time.  If you have a good relationship with a banker, factoring agent, angel investor, or rich uncle, you can probably figure out how to borrow against the value locked up in your inventory, invoices, equipment and sales orders.

So, what do we mean “Push the cash cycle faster”?

Every business has a cash cycle.  The company takes money from customers, spends it with vendors, issues invoices (bills the customer), and gets more money from customers.  And Repeat.

The trick is to make the cycle turn as fast as possible…To minimize the cash that gets “stuck” in places like inventory and invoices.   The faster the cycle spins, the faster you can begin to accumulate profits in the bank.

To “Push” the cycle, you’ll have to take personal responsibility for a few things:

1. Call your delinquent customers.  Then call the ones that are NOT delinquent. Don’t get angry, just ask them you are doing some financial planning and would like to “schedule their payment” of the outstanding invoice.   Tell customers that you’re offering a 2% discount for prompt payment this month.  Or a free gift.  Or $10 off their next order.  Use this as an opportunity to bond with your customers, not to scold them!
2. While you are on the phone with customers, tell them you have some excess inventory and are “blowing out some over-stocks”. If you’ve got excess inventory, now’s a good time to whittle that down and turn it into some quick cash.  If you’re like most businesses, you can afford to cut “Carrying Costs” by selling inventory for just a bit more than you paid for it. (OK, if things are tight, you can probably afford to sell some inventory at a loss just to avoid further carrying costs.)  You do know what you paid for it, right?  If not, please see my other posts on planning and budgeting.
3. If its a large order that’s got you down, try a variation on #2… call the new customer and offer a discount or gift for a partial PRE-payment. No body wants to pay 100% up front, but asking for 30% or even 50% is reasonable in most businesses.  Be frank.  Tell the customer that you’d like to do a great job for him… and have plenty of _____ (fill in the blank with staff/ equipment / inventory / parts…) on hand for his important job.  Explain that his large job makes him an important customer, and you appreciate his business.  Don’t say “times are tough” or “cash is tight”.  No body wants to save your skin.  But they do want great service and a good working relationship with their vendors (that’s you).

That’s enough for now.  Think about where the cash is hiding in your business, then visit some of my other blog posts to learn other ways to “Push the cash cycle” or borrow against that hidden value until you can unlock it.  And finally, take a hard look at the problem… what can you do to avoid this situation next time?  Use some of my free ratio calculators to uncover the bottlenecks that are keeping the cash from flowing freely in your business.

Dedicated to your profits,
David

PS: If you’d like to learn more about the Cash Cycle in YOUR business, it’s easy. Just join as a member and then contact me directly!  I’m here to help.  No question is too big or too small.  Plus, all new members get my free report, “Colors of Money” which describes the 14 different hidden sources of business capital.