When Cash Flow Is Tight

Seven Ways to Adjust to a Tough Economic Climate

By Mark Johnson

In our current economy, the lack of cash flow has become all too common with small business owners.  In normal times — when cash is plentiful and liquidity is good — there is less concern with the weekly cash requirements for payroll, vendors and creditors. However as the downturn in the economy impacts more and more businesses, the need to manage cash flow has risen and now there is a necessity to find creative solutions in order to keep businesses operating as expected.

Here are some tips I have learned through my dealings with clients and other small business owners to maximize cash flow in difficult times.

  1. Do not pay your suppliers until the due dates and — if necessary — go past the due date with the vendor’s concurrence.
  2. Accelerate all accounts receivable collections through timely customer follow-ups on past due receivables. Consider something like a discount for cash payments made prior to the due date.
  3.  Renegotiate lease terms on both rent and equipment when you are in the last two-to-three years of a contract.  Lessors would rather keep you in a longer contract at a lower rate than lose you as a client altogether.
  4.  Utilize outside consultants who work on a contingency basis to lower costs for expenses such as telecom, property and casualty insurance, etc.  These arrangements allow for lower expenses and the savings is usually split with the consultant.
  5.  Reduce inventory levels and manage workflow production with a minimum of on-hand product for manufacturing.
  6. Research your deposits paid over a year ago to utility companies in order to determine if the deposits are still required — there is a chance they may not be.
  7. Defer principal and interest on outstanding loans with banks and other creditors.

Additional assistance and guidance in the area of cash flow management can be provided by your finance and accounting professional.

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