All of us want our business to sail the seas of success. The journey, however, can be choppy and challenging. For some, it’s finding qualified staff. For others, it might be outpacing the competition. But when your business is struggling to stay afloat financially, it can spell disaster. Just like saving a sinking ship, the sooner you act, the better your chances of survival will be. Fortunately, there are steps you can take right now to help you get back in the black.
First, we’ll go through how to identify where your business might be leaking cash. Then, we’ll get into managing the debt that’s weighing you down. Ready? Get your life vest on and let’s get started.
Where Is Your Cash Going?
The first step in saving your business is examining where your cash is going. The goals of this step are to (1) get an overall picture of your outflow, (2) prioritize your obligations, and (3) trim expenses where you can. It might be time to cut pricey business lunches or spend less on branded merch giveaways. Getting a look at the big picture helps you target problem areas and discover savings.
Evaluate Accounts Payable
If you don’t have one already, you’ll need to create a comprehensive list of your accounts payable. Those are the bills you are going to need to pay, and you need to make sure this list has your due dates, monthly amounts owed, interest rates, any early payoff amounts, and where you send the payments. Looking at the list, you should be able to identify a few items your business can cut. It might be to your advantage to pay off a debt in a lump sum versus continuing to pay interest each month.
Identify Your Priorities
After you’ve narrowed down your list of expenses and cut unnecessary spending, the next step is to prioritize what’s left. Because you have more money flowing out than you’re bringing in, you need to move the most critical expenses to the top of your list. What can’t your business do without? For most businesses, payroll tops the list. The building that houses your business might also be a top priority.
There are bound to be bills you absolutely cannot fall behind on. However, there might be ways to reduce those costs. Think about downsizing or relocating to a more affordable building. If you’re spending a lot on payroll, it could be time to make some tough staffing decisions. Can you find another supplier that offers the materials you need at a better price?
Accelerate Accounts Receivable
We’ve already addressed your accounts payable. Now it’s time to work on the other side of the coin, your accounts receivable. This is your list of all of the clients who owe you money, how much money they owe, and when their payment is due.
If you find that you have a number of people or companies who owe you money, then the simplest solution to your cashflow crunch might be getting paid more quickly. Factoring, or accounts receivable financing, is a unique option that lets you accelerate cash flow in this way.
A company called a “factor” buys your receivables to give you an advance on your client payments. Your clients then pay the factor directly. Factoring accelerates your cash flow, but it does not give you extra cash. You’ll still need to tighten your belt to reduce outflow and account for the factoring fees. But if getting paid more quickly will help manage your cashflow in the short run, our team of specialists can help out.
Create a Cash Flow Plan
At this point, you should have made several revisions to your initial accounts payable list. Now it’s time to rework that list into a cash flow plan. This plan will show who you need to pay, how you’ll pay them, and when and how much to pay them. Cash flow planning software is available online and can help you streamline the process and generate reports that make your plan easy to visualize.
Your cash flow plan should be a living document, not something you do once and forget about. Review it regularly to make sure you’re on track with the plan. If you’re following the plan and it isn’t working the way it should, make adjustments. Then, revisit it in a month to see where you are.
You may also want to develop a “projected cash flow statement” that shows you where you’ll be next month if you follow your new plan. It’s worth getting professional help if you don’t generate a projection like this already as part of your budget.
Managing Your Debt
Very few businesses exist that don’t have debt in one form or another. Now debt isn’t always a bad thing. It can save you money in the short them that you can invest in high yield opportunities for a better return. Debt can help to build or boost your credit, too. It’s when you’re unable to manage debt that it becomes a problem for your business. Here are a few ways you can get your debt under control.
Work with Creditors
Communication is key when it comes to talking to your creditors. Instead of ignoring overdue notices, take a proactive approach and reach out to their billing or customer service department. Remember, your creditors don’t want to see you fail. It’s in their best interest to work with you so that you can continue to make payments. They may be willing to waive overdue fees or enroll you in an assistance program. Let them know when and how much you can pay and ask about adjusting your loan terms.
Refinance High-Interest Rate Loans
Refinancing can reduce your interest rate or extend the term of your loan. Both will lower your monthly bill. A lower rate can also shorten the time it takes for you to pay off the debt entirely. If you have an old loan, the rate you qualified for when you applied might be out-of-date. Find out if you qualify for a better rate or longer terms, and then use the new loan to pay off your old debt. Our team specializes in debt restructuring and would be happy to help you analyze and understand your options.
Consolidating is similar to refinancing, but instead of using one loan to pay off another, you group several debts into one payment plan. It makes it easier to keep track of your cash outflow and payment deadlines. There are more advantages to consolidating than making your accounting more convenient. The main reasons to consolidate are to get a lower interest rate, adjust the term, or lower your monthly payments. Ideally, consolidating will impact all three.
Pulling your business out of debt isn’t easy to do alone. Successfully rescuing your business depends on identifying and utilizing your available resources. Your in-house team is one of those resources, but having a reliable broker can change the game for you entirely. Your broker can bring a new perspective to the table on top of having a high level of expertise in financial planning. Our team is ready to help you identify the financial tools you need and rapidly put those tools in your hands.