Three Ways to Survive a Temporary Cash Crunch
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The bad news? You’ve been hit with a surprisingly high tax bill this year.
Now the good news: Higher taxes means profits were up last year!
But there’s more bad news—the cash drain after paying the taxman may have triggered a cash crunch—and more good news!—there are several ways you can survive a temporary cash crunch.
It is important to understand, however, that everything starts with a well-crafted cash flow projection. Knowing your cash flow and being able to reliably determine what it’s going to look like in the future lets you know how effective each of the following ‘survival measures’ (or any other, for that matter) is going to be.
1. Cut expenses that affect cash flow…but do it wisely.
Making cuts in operating expenses is the first tool in the business owner’s financial tool kit. A key area for saving precious cash is delaying capital expenditures—such as new equipment or upgrades to existing machinery—for a later date. However, make sure you don’t engage in a reckless slash-and-burn strategy. Make smart reductions that don’t cripple ongoing sales and service.
2. Offer sales, discounts, or reduced-priced inventory.
This really just comes down to managing and evaluating inventory and accounts receivable.
When money is tight, drastic steps need to be taken. Needed cash can be quickly made by having sales, offering special discounts for time-sensitive payment strategies, or even by selling excess inventory at reduced prices. And don’t forget to say that you’re offering rewards to customers, and not that you’re experiencing cash-flow difficulties.
Also remember to make sure these are limited-time offers instead of permanent changes to your business model. These kinds of tactics are for making a quick buck in a pinch and should not be your business’s bread and butter.
3. Restructure monthly debt payments.
Examining the liability side of operations is probably one of the more overlooked areas of cutting costs in a cash crunch. Things like restructuring debt with lower monthly payments, or asking for concessions from vendors (such as extended payment terms) are often two surprisingly easy ways to lower monthly operations costs. Communicating honestly with creditors is the best way to show that you value the relationship and have every intention of meeting your obligations to them—which is exactly the good news they want to hear!
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