Even the best laid plans can go astray and create a cash-flow crisis for a small business. Our issue today concerns clients/customers that say “we can’t pay what we owe” or “we can’t pay this month, need several months to catch up.”
When a small business is hit with this type of cash flow crisis, quick action is required if the business is to survive. The first thing to do is to determine the size of the problem, and then to determine if your personal resources can cover the short fall.
If the answer is no, then your next step is to visit your bank; hopefully, since the start of your business, you have established a strong relationship with the bank. Ask for a line of credit of overdraft protection and make sure that you walk in with an up to date cash flow forecast.
In today’s economy the answer may be “no” and other options may have to be considered.
- visit with your creditors to explain your situation and ask if they will extend your payment options.
- borrow on your receivables – there are firms that provide these services.
- look for outside investors.
In a previous blog I covered several more options.
The best answer is to establish a “cash-flow crisis plan” before such a problem occurs. Another prevention possibility is to diversify your client base so that non-payment by one does not put you out of business.
Many entrepreneurs are challenged – even intimidated – by the prospect of collecting what is owed to them. In spite of this discomfort or fear, you must be proactive in collecting your receivables. If you’re not, you gain nothing and lose everything.
Have a great day!