5 Ways to Weather a Cash Flow Drought – and Still Pay Your Bills
You have $6,000 in cash. That's the good news. The bad news? About $16,000 in payroll, quarterly BAS, creditor payments and bank interest payments are due tomorrow. You're already behind on the basic’s like the phone bill.
When you're running your business on a shoestring budget, you may find yourself operating in two cycles: one of elation or one of despair. Sure, all it takes is a few late-payers to slow down your business, but it doesn't have to crush your spirit.
Remember, you're a small business. You've made it this far by relying more on your wit rather than a bank balance. You can press through this difficult situation. First, take a deep breath and gather your resolve. Second, begin to put your persuasive and creative energies to work so you can survive the drought. Here's how.
Get Your Priorities In Order
Half the battle is knowing who must absolutely be paid first. Focus on legal and credit obligations. As an employer, you should always meet payroll. And then there's the ATO, which requires that you make timely payroll deposits and frowns on non-compliance. Thinking about missing your quarterly tax payments? Don't. If your estimates don't balance out in the end, you'll be penalised, and catching up on missed payments can be difficult.
A bad credit history can stifle your business. Think twice about not paying at least the minimum on credit cards, bank equity lines, insurance premiums, and car or equipment leases, These are double-whammy creditors: they quickly report your delinquencies to the credit companies such as Baycorp, and they can be heavy-handed, stopping your service or coverage and even repossessing their goods.
Build Up Your Credibility
Before you pick up the phone to sound the horn, determine whether your cash crunch is short- or long-term–is the check coming in three weeks or three months? You don't want to make your vendors more nervous than they should be. Alerting everyone as soon as you're in trouble may hurt you more than it should. Your vendors may start spreading the word that you're having problems.
You'll need some credibility to burn when times get tough, though. A rule of thumb: If your money is delayed for two months or longer, call your vendors to explain the situation. Stay in good stead by paying earlier or according to terms in cash rich months and averaging 45-day payments in the other months. Whenever a vendor calls about a past-due bill, set a date he can meet and always mail the check by then, establishing himself as a person of his word.
Appoint a Corporate Advisor
By appointing a corporate advisor they have available a number of different tools that can asset your business. They also deal in this type of situation on a daily basis so they will have a lot more experience in how to handle the cash flow issues your business is suffering. Some of the products they offer are Business loans, Equity Loans, Short Term business loans, Debtor finance or otherwise known as factoring and inventory finance.
Finally, always tend to the business of collecting your money from others. Standard operating procedure:
- Collect project deposits and progress payments.
- Submit invoice and back up in the right form and to the proper company representative, so there’s no delay in processing your payment.
- Make sure you and your clients understand (and agree on) the payment terms.
- Follow up with a payment call the first day after an invoice is due.
- Never agree to any financial arrangements that you cannot afford to honour or underwrite.