Strategies for Surviving a Cash Flow Crisis

By: Daniel Russell

Unexpected cash flow crises can cause significant difficulties for business owners. Cash flow issues are particularly hazardous because they can compound upon themselves and rapidly spiral out of control. Because of this, it is important to get a lid on the problem as quickly as possible.

If your organization is experiencing cash flow problems, the first step should always be to reach out to your accounting advisor. Partnering with an expert is the best way to weather the crisis. Once you’ve connected with your accountant, you can work together to take the following mitigation steps

1. Find the Cause of Your Cash Shortage – Rooting out the cause—or causes—of your cash flow shortage is an essential first step. You can’t treat the wound if you don’t know from where you are bleeding!

Four common sources of cash flow problems include:

  • Lack of proper attention to expenses and related cash outflows, i.e., credit cards
    • Inability to predict or forecast your organization’s cash flows
    • Delays in receivables due to slow-paying customers
    • Lack of processes or action focused upon delinquent customers

Work with your accounting advisor to determine if one or more of these issues is the cause of your cash flow crisis.

2. Re-tool Your Receivables Strategy – Whether or not slow-aging receivables is the root cause of your cash flow crisis, it is always worthwhile to review and refine your receivables strategy. Accelerating cash inflows to your organization is a straightforward method for improving your situation.

3. Negotiate Your Payables – The reverse of the last strategy, negotiating your payables to decelerate your cash outflows is another common method for dealing with cash flow issues. Oftentimes, the best method is to simply be honest and up front with your vendors about the tough circumstances you are facing. This works especially well with any vendors with whom you have worked for a long time—loyalty means a lot!

4. Take Out a Business Loan or Credit Card Advance – Sometimes the best solution to a cash flow crisis is to take advantage of the borrowing options available to you. This is a quick way to bring money immediately into your business. Just make sure that you are fully aware of the interest rates you are facing. Borrowing money in this manner is a good short-term solution but not a good long-term strategy. For this and other reasons, this can also create additional cash flow issues, so care is needed when using this strategy.

5. Seek New Investors – A better long-term solution for injecting cash into your operation is to raise investor capital by bringing on a new business partner. You should, however, be very familiar and comfortable with new partners and how much equity and control you are giving them in your business.

6. Cut Expenses as Much as Possible – When faced with a cash flow crisis, you need to take a conservative look at your organization’s expenses and figure out where you can reduce spending and eliminate waste. Prioritize your expenses based on their connections to the critical functions that make your business run smoothly and eliminate anything that is not in this group.

7. Offload Non-essential Assets – Another short-term strategy, selling off non-essential assets, is a quick way to get a one-time injection of cash into your business. These include older machinery, non-operating real estate, vehicles, business lines, and many other examples.

The best strategy for surviving a cash flow crisis is to do your best to prevent one from happening in the first place. That said, some situations are inevitable. In the event of an unavoidable cash flow crisis, work with your accountant and draw on the steps above to help pull your organization through. If you’re in a safe place now, but worried that a crisis could occur if something doesn’t change, that’s another great reason to reach out to your accountant and have them help you get started!

Are You Looking for

Experienced Attorneys?

Get a free initial consultation right now