How to Survive a Cash Flow Crisis?

Are you finding it difficult to make ends meet in your business? You are not alone, many companies are facing these issues around the world. There comes a time in life for many companies when they face such tough situations. However, the ones that come out of these situations are the ones that go on to build a business empire. Apple is one such example.

We all know how important cash flow is for the survival of any company. It helps you in the smooth functioning of the business as well as in its expansion. If you have enough cash in your coffers, it will help you get through tough times like the current COVID scenario.

However, not every company is blessed with such good fortune. For those who are running short on cash, here are some ways to run your operations:

Financing

The first solution that comes to your mind is financing. There are many companies providing such financial services. These companies can help you get loans that will help you stay afloat. You can ask your bank too to give you a bank overdraft service. This can help you take care of your rents and salaries for a short period of time.

If you need money for a longer period of time or to pay off your creditors, you need to borrow from the banks. This can be costly for companies as it attracts an interest rate and also adds a fixed monthly expenditure in the form of EMI’s. However, this is one of the fastest ways to generate cash if you require it immediately.

Asset Sales

Many big organizations have a lot of assets at their disposal that are not being used by them. They have assets like land, offices, and other properties. These assets can be sold off to meet cash flow shortages faced by the company.

The biggest challenge with this method is that you need to get the right price for your asset. The pricing of assets is subjective and what value you have may not coincide with the buyer. So you need to find the right buyer who is ready to give the right price and this can be a time-taking process.

Look for the Right Investor

There are many investors who are looking for good investment opportunities. And not just people, many companies look for such opportunities. This is kind of a last resort for a company when they can’t get financing from any other sources.

You would have to give up your share in your company to an investor. So, this should be something that you must be ready for. However, this provides with you an opportunity as well. If you are able to land a strategic investor who apart from money brings other services to the table, it may help your business grow. The challenge here again is getting the right valuation for your business. You don’t want to give up your share for cheap.

Capital Investment Plans

If you are suffering from cash shortages, you might want to put your expansion plans on hold for some time. Expansion plans need a lot of capital investment. This drains the organization of a lot of cash. So, if you have any projects running, you should try to delay them and use that capital for running the current business operations.

Convert Fixed Costs to Variable Costs

Fixed costs are like a burden in times of uncertainty. It is better to convert these fixed costs to variable costs wherever possible. One way of doing that is by selling your assets and then leasing them back again. This helps you generate cash and also converts your fixed cost to variable cost. You could also consider contract manufacturing, leasing warehouses, or transportation fleet leasing.

Consider Alternative Revenue Streams

You should take a ride on the roads less traveled during uncertain times. I know in tough times it can be dangerous but you have to take that leap of faith. You have to look at opportunities in other sectors as well to start a revenue stream.

A prime example would be how, during the COVID times, cloth manufacturers used the situation to manufacture PPE kits and face masks. This helped them keep the money flowing and allowed them to meet their expenses. Over the long run, it opened up a new business vertical for them as well.

Debt Collection

When you are going through tough times, you may want to ask your debtors to pay up earlier than before. This may backfire as you may lose a customer, so make sure you talk to those debtors with whom you have a good relation first. Also, you might want to reduce your payback period. For example, if you gave credit for 2 months, you might want to reduce it to maybe a month for new customers.

Inventory Management

It is very important to manage your inventory at such times. These are your sources of revenue, so you need to manage them with full efficiency. If you are using them to manufacture, you should concentrate on manufacturing those products only that sell the fastest. Keep your SKUs concentrated on fast-moving items.

You should also consider keeping buffer stock so that you are not short on raw materials. Concentrate on having more raw materials for those fast-moving goods so that you can continue the production of those items. Update your safety stock level to avoid shortages of stocks.

To Sum Up

Dealing with a cash flow crisis involves using more than just one of these financial solutions. However, you need to choose wisely as to which of these will suit your needs.

Everyone has tough times in their lives. That is why the saying “when the going gets tough, the tough get going” is true. You have to make some tough calls during these times. But there is always a ray of light at the end of the tunnel and you just need to keep going and not stop.