What To Do If Your Cash Flow Has Dried Up?

It’s all too easy to think that if your business is bringing in sales, it must also be earning cash.

Sadly this is often not the case.

There are bills and taxes to pay, and you may find your customers don’t always pay you when they should – and this can easily lead to your business running out of money.

In fact, poor cash flow management is one of the biggest reasons why small businesses don’t survive. So it’s important that you don’t keep making mistakes when it comes to managing your business’s money.

Here are five top tips to try if you find your cash flow has dried up.

1. Consider contacting your suppliers

If you think you’ll need more time to pay a supplier, don’t wait until they chase you for payment. Depending on your relationship with them, you might wish to contact them now, by phone if possible, and negotiate extra time to pay.

Approaching your suppliers before they approach you could potentially cause less damage to the relationships you have with them than if they had to chase you.

Be careful though, because if your suppliers think you are a poor payment risk they might tighten their credit terms or refuse to deal with you in the future.  Judge your suppliers carefully before you make the call.

2. Contact HMRC

Likewise, if you think you won’t be able to pay a demand from HMRC – whether that’s for VAT, income tax, or any kind of tax – don’t wait for them to contact you.  Get in touch with them first and ask for time to pay.

3. Arrange additional finance

If you’re concerned that this isn’t a short-term one-off issue, you’ll need to think about bringing some more cash into your business.

Could you negotiate an overdraft with the bank for short-term borrowing, or a loan for longer-term finance?  What about invoice discounting, where a third party pays you up front for your customer invoices, less a percentage for commission, and takes on the task of collecting money from your customers?

Check your options and, if necessary, seek advice about what methods of finance are available to you.

4. Consider looking for different markets

If your existing markets aren’t bringing you in enough cash, could you sell your products and services elsewhere?  Perhaps by selling online as well as offline (or vice versa), or by expanding into a different country, you might find customers who pay you sooner?

Marketing to these potential customers need not cost the earth.  Make use of free social media marketing tools such as Facebook and Twitter and listen to the conversations that potential customers are saying on these platforms – you could discover a new product line or business strategy to branch into.

Do exercise caution here, though, and don’t overtrade.  If you carry on selling when your business is clearly not viable then you could risk prosecution.

5. Improve credit control

If your cashflow issues are caused by customers not paying you quickly enough, make sure you don’t make the mistake of being too kind to them.  You need that cash!

E-mail your customers and chase up your invoices. You may find that the functionality in an online accounting system – such as FreeAgent’s automatic invoice reminder e-mails – can help you to speed up the process of getting paid.  And if all else fails, pick up the phone and call the people who owe you money!

It is frightening to run out of cash.  Make sure for the future that you keep an eye on what you expect to come in and go out, to help avoid this happening again. And consider making use of a cash flow forecasting tool such as Float – so you’ll be able to anticipate any problems in advance.

micro business actionToday’s Micro Action

If you have a cash flow issue, how could you use some of these tactics to regain control? Spend some time today identifying the pros and cons of these different solutions and figure out which will work best for your micro business.

Emily Coltman

Emily is a very unusual Chartered Accountant – she speaks fluent plain English! She has worked with small businesses for the last 12 years to help them lose their fear of the taxman and “the numbers”. She is Chief Accountant to FreeAgent who make award-winning, beautifully simple online accounting software for small businesses and freelancers.