How to Avoid a Cashflow Crisis

Facing a cash crunch as an entrepreneur is a tricky thing. When the business has run into a financial wall, there are still certain expenses that must get paid, otherwise, trouble will be brewing. Certainly, office rent and equipment that’s paid for monthly are the things that immediately come to mind but keeping the lights on and the phone lines operational along with the internet facility aren’t far behind either.

Hitting a cash crunch is a dire situation for a business. Many people spring into action way too late in the day when they realize that their business is in trouble. Let’s look at what you can do to prevent the situation, and should it arise, what options do you have?

Operate Lean as a Rule

It’s a common mistake to massively overspend on new office furniture, fancy chairs, and boardroom furniture to impress visitors and staff alike. Typically, new businesses overspend and run themselves into a cashflow problem of their own making. The second reason that a cashflow crisis happens is that they overestimate early sales or don’t account for seasonal periods that are often slower than imagined.

When running a lean operation that buys second-hand furniture, turns off the lights in unused offices, and is frugal as a way of operating, then lower cashflow for a period is survivable without panicking. It also helps to avoid going through business funding faster than expected and needing more of it.

Save Earnings in the Good Months

Especially when running lean, you can save more of the earnings provided in busy months. This helps weather the storm when hitting a business downturn or a slump in sales across the industry that the business is in.

When spending lavishly in response to higher than expected earnings, this leaves no dry powder to handle bumps in the road. It’s no surprise that successful companies tend to operate with plenty of cash-on-hand because they never know what trouble is around the corner and it pays to be prepared for anything.

Use Freelancers and Part-time Staff

Rather than hiring a string of full-time employees, consider using part-time staff and online freelancers to reduce costs. Plan their work responsibilities carefully to maximize their productivity as most full-time workers aren’t anywhere as productive as you’d think. Parkinson’s Law tends to kick in where the work expands to fill the available time instead of efficiency ruling the day.

Keep payroll costs down and the ongoing commitment to a set number of staff at a minimum to reduce payroll expenses when a downturn starts happening.

What to Do If Your Business Has No Money

When you’re faced with a business that’s having a cashflow problem but still has sales happening, then seeking one of the commercial loans from Become is a good idea. They provide business loans to companies that have established trade and need some additional finance. They also have various types of financing including merchant cash advances and invoice factoring.

It’s always a good idea to run a lean operation from the get-go. While it won’t make the employees terribly happy, it does ensure that the business is far less likely to have insufficient money to pay their salary. In the long-run, it’s the smarter way to run a business.

Dragan Sutevski

Posted by Dragan Sutevski

Dragan Sutevski is a founder and CEO of Sutevski Consulting, creating business excellence through innovative thinking. Get more from Dragan on Twitter. Contact Dragan