I was recently asked for my #1 tip regarding small businesses and how they deal with cash flow problems and issues. While keeping up with your collections and invoicing promptly are essential, my number one tip is to avoid these crises entirely.
The best way for small businesses to deal with cash flow issues is to have a system in place that allows you to see the issues coming; avoiding or mitigating the problem before it becomes a crisis. Many small business owners have had that panicked “how am I going to make payroll?!?” moment. If you have a forecasting system in place, you can see this coming in advance and give yourself a chance to gather solutions. That may mean any of the following: securing a short term loan, transferring money from somewhere else, liquidating assets, or working out an arrangement to delay payments elsewhere.
Furthermore, if you’re a growing business, temporary cash flow issues are inevitable and should be expected. It’s likely that you’re putting out money for inventory, equipment, and staff to handle the growth before you receive the revenue. In this situation, having a line of credit in place is a must – but again, that needs to be arranged in advance.
To sum this all up, handle cash flow issues in the least stressful way possible – avoiding them!
After all, don’t we already have enough stress?