Business Insider revealed that 82% of businesses fail primarily due to cash flow issues. Cash is an essential component of a business. It’s required to fulfill fixed and variable expenses like payroll, utilities, raw material, etc. When more money is flowing out of a business at a rate higher than cash inflows, it’s likely to fail.
Businesses require comprehensive strategies to deal with such a crisis. Our experts reveal some strategies that can help a company survive a cash flow shortage:
Improve profit margins
A cash flow crisis should lead you to revisit your business plan. A poor business plan could have led to this situation. Revamp your business plan and pricing to improve profit margins. Use job costing to determine the most and least profitable part of your business. Adjust your business plan to focus on the operations that perform better to earn more profit.
Revamp your policy for receivables
Most businesses allow their customer’s receivables, which goes on their balance sheet as a current asset. The downside of receivables is that they are not liquid cash. If your business has run into a cash flow problem, the first thing you need to do is begin collecting on your receivables.
Negotiate with customers to make a partial payment so that you can stay afloat. You could change to a more robust receivables policy for the next month or only accept prompt payments.
Negotiate liabilities
Most companies have some form of liabilities on their sheets, whether that’s payables, prepayments, or debt. Try to renegotiate your liabilities to help with cash flow problems. Push back payments so that you can buy more time to save your business. As for loans, try to renegotiate terms so that it’s easier to pay off.
Reduce expenses
Profit is the money left over from revenue after paying the expenses of a company. While increasing the price might harm the company more, you can always slash expenses for lean production. Every penny saved as you reduce expenses will help during this crisis. Prioritize the company’s expenses and get rid of all unnecessary expenses.
Sell excess assets
To improve cash inflows during a challenging time, selling non-essential assets is a good decision. Excess land, old equipment, etc. can be sold off without having a negative impact on the business. The money generated from these sales can be used strategically to help the company stabilize its financial position.
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