Advice for Financing a Business, Large or Small

Running out of Cash - What to do if your business is cash strapped

Rare is the business that has not suffered a "cash flow problem." In street terms, this means running out of money. Here is advice about what you might do if you start to run out of money and need Business Finance.

Step 1: Get a fix on the seriousness of the problem.

Look at where you are right now. How much money do you have in the bank and how much can you draw on easily from savings, cash value of life insurance, relatives, etc.? Then make a short projection of money coming in during the next few weeks and money due to be paid out. This will give you a picture of where you are headed and how fast a train you are riding.

This first step is important because it tells you how concerned or panicked to be. You may find that things are tight today, but next week they will loosen up considerably; or your quick look may tell you that you are on a fast train to the poor house.

Step 2: Make a cash conservation plan.

Simply put, make a quick plan that stops spending and increases cash coming in. Treat cash you have as pure gold. Don’t let it go unless absolutely necessary -- and then even delay the spending as long as you can. This may mean leaning on your creditors, but that is better than running out of money altogether.

If you can speed up any items of cash income, do so.

Step 3: Work out a temporary problem solution.

If you are running short of money, chances are it is not a simple problem. Usually there are a number of factors or forces playing on the problem. You may not even be aware of what they all are.

Since you probably don’t have the luxury of time, you can’t sit around doing long, drawn-out analyses and problem fact-finding. You need to develop at least a short-term solution fast. Perhaps you will eliminate some expenses. Perhaps cut some people. Maybe a sale or promotion will boost revenues. Brainstorm and look for ideas.

An accountant, lawyer or other advisor might help. While this step demands quick action, don’t feel you have to go it alone. Business associates or others who have been there might give you some good ideas. Remember, running out of money in business is a common problem. You are not the first to experience it.

Step 4: Contact your creditors.

With a plan in hand for solving your "cash flow problem," (at least a temporary plan), contact your creditors or others who are being affected by your problem. Briefly tell them what is happening and what you are doing about it.

This is a tough step for many. If you haven’t been through this before, you won’t want to do this face-losing step. You won’t want to admit to others that you are a "bad money manager." Your first impulse will be to hide your shame and deceive them into thinking everything is okay. Business novices often do this. It is a mistake -- often a fatal mistake.

Sometimes this step can be accomplished with a telephone call, but often a personal meeting is better.

Step 5: Be strong, forceful, assertive and confident.

Actions and attitudes speak louder than words. It is important that you show command of the situation. Sure, you have a problem, but you are confident you can handle it. Don’t wine. Don’t blame others. Take responsibility for the problem and confidently show what you are doing about it. This will get you more consideration from your creditors than any other approach.

I once knew a cash-strapped business that operated for over eighteen months because the creditors were convinced the management was working the cash shortage problem. That management was strong, confident and assertive. They had a workout plan and shared it with creditors.

Step 6: Be sensitive to signs of creditor panic.

In doing steps 4 and 5, be sensitive to indications that one or more creditors are about to panic. Here is where experience and finesse comes in handy. If you have neither in these matters, just watch for signs that tell you a creditor is not buying into your story -- your plan.

Remember, in communicating with creditors and advising them on your problem and planned solution, you don’t have to bear your soul. You don’t have to tell them absolutely everything. If it appears that further details will only upset them more, ease off. You may have to tell them less and/or promise them more to win them over to your plan.

This is the step where you will be happy you took that negotiating course a while back.

Step 7: Work your plan and keep them informed.

Having calmed the seas as much as possible, work your plan and keep your creditors informed of your progress. Keeping them informed is a two-way street, for as you inform them of your progress you can get important feedback about their attitudes and patience with you.

Ideally, you want to treat all creditors with equal consideration. In practice, you give and take according to the attitude of each. If, for example, everyone is happy except one -- and that one can kill you, prudence suggests that you give that one some extra consideration. Remember, every creditor is a separate business or individual. Each has its own cash flow issues. Some can tolerate your late or reduced payments. Some can’t. This might be an area where the "squeaky wheel" approach makes some sense.

Step 8: Work on longer term solution.

With the immediate cash problem solution in the works, think about a more permanent solution. Identify the causes of your cash shortages and begin to lay plans to do something about them. Cash flow problems are really not problems. They are symptoms of problems. The cash shortage is just an indicator of a problem.

The problem may be too few customers, poor pricing, excessive expenses, poor marketing, or any number of other causes. Getting more money will not cure a cash flow problem that is being caused by one or more of these other real causes. It may reduce the pain for a time, but it will return.

Finding these longer term solutions is what business decision making is usually about. That is what business is. The way you know you have gotten the upper hand in dealing with these business decisions is the absence of "cash flow problems."

Good luck!