Realistic Tips to Help Navigate Your Small Business Through a Cash Crunch

Small Business Cash Crunch

If you are a small business owner, you will agree when we say that running a business is full of challenges and opportunities. If you wish to lead your small business to profitability, you need to manage your finances to enable business growth. On the one hand, you must make steady progress toward your long-term business goals; on the other hand, you should never run out of working capital. A shortage of working capital or a cash crunch can be fatal for a small business.

Many reasons a small business may fall into a cash crunch. Usually, it is one or more of the reasons listed below:

  • Insufficient planning
  • Late payments
  • Unprecedented business growth
  • Increasing costs
  • Unexpected expenditure
  • Low market demand

Fortunately, there are many options for small businesses to navigate themselves out of a cash crunch and bring their finances back on track. There are several self-employed loans online, bank loans, and personal loan for the self-employed. But before you take on more credit – we have put together a list of the different methods you can use to tide your small business over a cash crunch. The best option will depend on your money, the time you need it, and your credit record. Choose one that suits your business but make yourself aware of all the options for future reference.

Here are some ways to pull your business out of a cash crunch:

1. Understand the Cause of Your Cash Flow Issue:

Your business is facing a cash crunch for a reason. Before looking for loans for self-employed people, introspect your business strategy to understand the cause. It could be:

  • External Factors – Regulation changes, online competition, disruptive technology, etc.
  • Delayed Payment by a Large Customer – Find out why your most significant customer hasn’t paid on time. Coordinate with them to get the payment completed.
  • Rising Costs of Production – Go over your expense records to see how much you spend on production. Please watch your gross profit closely to ensure it doesn’t slip again. Find ways to cut costs without compromising on quality or raise your prices to counter rising costs.
  • Increasing Business Overheads – Overhead costs can eat into your business profits. Review your spending on the lease, utilities, employee costs, etc., to keep overheads in check.
  • Quick Business Growth – Your business may be growing faster than you predicted. If you need to slow down, focus your efforts on only selected clients who are profitable for your business and pay on time.
  • Slowing Sales – Your sales may be slower than you predicted. Review your marketing plan and sales campaign to improve the rate of sales.

Read More: 6 Cost Management Strategies For Small Businesses

2. Defer Superfluous Expenses:

One of the first things to do when you face a cash crunch is to defer unnecessary expenses. Find out which expenses are necessary and which ones can be postponed for a few weeks until cash flow improves.

3. Keep a Balance Between Receivables & Payables:

An imbalance between payables and receivables may worsen the cash crunch in your small business. Discuss your situation with creditors and debtors to buy some time until you restore the balance.

4. Track Due Dates of Essential Expenditures:

List all the essential expenses and keep track of your bill due dates. It will give you an exact idea of how much time you have left to arrange funds. Manage the available cash and defer payments until the due date instead of making them early.

5. Find Internal Funds:

Before you look for external sources of funding to deal with your cash crunch, look for internal funds that you can free up to finance your working capital. You could redeem investments, sell under-used assets, and renegotiate payment terms with suppliers.

6. Apply for a Loan:

Banks offer loans and credit lines to small businesses needing working capital funds. If you have a good credit score, you could get an instant loan for business. Discuss the consequences of this step with your business partners and finance managers before applying for a loan.

7. Bring in New Partners or Investors:

At a cash crunch, getting new investors or business partners to share ownership in your business is also a lucrative option. The new investment will fund the business and bring a fresh perspective on running the business.

8. Ask Family & Friends:

You could also talk to reliable family members and friends to loan you the money you need to bail your business out of a cash crunch. This method is beneficial if the amount is small and you are confident you can repay it quickly.

9. Get a Credit Line:

Banks offer credit lines to small businesses. The credit line is similar to a loan but you are only expected to repay the amount you use and not the entire credit limit. You could also check out an instant loan for self-employed.

10. Use Credit Cards:

Depending on your credit card, you can always repay your suppliers using your credit card and get a credit-free window until your cash crunch passes.

11. Monetize Gold:

In some cases, it is also wise to monetize your gold holdings to help you through tough times. Most people in business do not prefer selling family heirlooms like gold jewelry, so you could use the gold as collateral to get additional funds at a low-interest rate.

Even a tiny cash crunch can prove to be difficult in a small business. Rest assured that several options are available to help tide your business over a shortage of working capital. Keep track of your payables and receivables to ensure that your business does not land in such a situation. Always discuss the financial business situation with transparency with your business partners and financial managers. Your team may often bring in new ideas and innovative solutions to keep your business afloat.

Take learnings from cash crunches and make arrangements to avoid them in the next financial cycle. Ensure that your suppliers give you enough time to complete the payment and keep your options open. Drop clients who always delay payments and find new ones you can rely on.

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