How to manage a cashflow crunch
Have you dropped the kids off to school, ready to get back to your business now that you have the house to yourself? As you look at your numbers, your stomach drops. Sales weren’t what you wanted over the holidays and now you have some big bills coming up.
You can feel your stress levels starting to rise, and its only the first day!
Cashflow crunches aren’t fun but there are steps you can take now to manage them. I’ve put together a list of practical actions that you can take to bring your stress levels down.
6 practical steps to manage a cashflow crunch
Step 1: Switch to a payment plan
Can any of your large annual bills that are coming up for payment soon be switched to a monthly or a quarterly plan? This would reduce the money that is flowing out of your business in the short term.
If paying annually gives you a discount, you may be able to switch back to an annual payment once your cashflow crunch is over.
Step 2: Delay non-essential purchases
Could any of your non-essential purchases be put off until your sales increase, e.g buying a new laptop? There may be a temporary solution to your slow laptop, like shifting documents or photos to a hard drive.
Perhaps you’d been planning to sign up to a new software platform. Could you get everything ready for the move now, but make the purchase later?
Step 3: Negotiate with your creditors
Do you have any bills that can be negotiated to a lower rate or paid off over a longer period of time? Let’s say you’re going to a conference in November and $2,000 is due this month. By talking directly to your creditor, the conference organiser, you may be able to change the terms of payment to help you manage your cashflow crunch. The most important thing here is talk to them rather than ignore the bill and hope they won’t care. Go to them with a payment plan that you can afford so you are giving them a solution instead of asking them to work it out for you.
Step 4: Use credit card limit
Is there any space to pay for expenses on your credit card AND still be able to pay your credit card off in full.
This step can be useful as it means that the cash remains in your business for longer as you’re no longer need to pay for expense right away. I don’t recommend using this step if you’d end up incurring high interest costs because you aren’t able to pay the balance in full when its due.
Step 5: Use a short term loan
Did you know that Paypal and Stripe offer short term loans? The amount they’ll lend will be based on your sales. They do charge a fee, so be sure to read the fine print so you know exactly what this kind of loan would cost you.
An overdraft from your bank could be another option, although these usually need to be set up in advance.
Step 6: Take action to boost your short-term sales
What could you do in the short-term to increase your sales quickly?
First, work out how much you need to cover the cashflow crunch, so you know exactly how many of each type of service or product you need to sell. You might find you only need to sell two discounted packages to ease your cashflow.
Examples could include a special limited time offer, bundling up your services in a different way, or offering a discount for upfront cash payments for a package of services e.g. a 6-session package.
Second, share your offer everywhere! Your social media, your email marketing, reach out to past clients to see if it would be useful for them, or ask business associates if they know of anyone who could use that offer.
While a cashflow crunch can be unnerving, there are actions you can take right now to manage your cashflow issues.
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