Entrepreneurs are known to be both financially savvy and extravagant in equal measure. Theyâ€™re keen to monitor the outgoings wherever possible, but theyâ€™ll also splash the cash when it comes to marketing and advertising their business.
If you are one of those adventurous entrepreneurs, at times it is possible that youâ€™ll find yourself in a cash flow short fall. When this happens, it is likely that you will turn towards your current expenditure, in order to see what could be cut down without jeopardising the businessâ€™s future income.
Almost every type of business ends up in this situation at one time or another and it is possible that you start to experience the following because of it:
- Receiving numerous orders from suppliers
- Receiving partial or late payments from your new customers
- Requirement of cash (that you do not have) so as to fulfil all the new orders you have received
- Panicking about shortage of funds
Of course, this is a predicament, but it is important to remind yourself that by doing certain things it is possible to get out of the rut. If youâ€™re running a business and if like many other businesses, you are also on the receiving end of the impact of the current economic climate, then you will definitely find some of the solutions mentioned below very helpful.
If not, simply take a look at every solution we have mentioned and set up a specific plan and one that ensures you are never in a tight spot with regards to the cash flow of your business.
Here are a few unique strategies that would help you deal with shortage of funds:
- Negotiate the terms with your Vendors
Most of the vendors and suppliers also accept partial payment and deliver the product that you require so as to fulfil all the commitments with your consumers.
If you are very cautious about timing, you can simply get the required goods with a monthly or semi-monthly payment period. You could even ask your vendor about their terms and conditions, and negotiate accordingly.
The benefit of negotiating with your vendor is that, itâ€™s often free of charge and payments for the raw materials are done in a timely manner. But, one drawback is not every vendor might agree to negotiate, which could perhaps result in â€œsurpriseâ€ bills.
- Borrow from other Projects
In certain cases, it is not a matter of having no money to bring in the necessary supplies, but more about having no money designated for that particular project.
Itâ€™s obvious that you wouldn’t want to do this every time. But, for a â€œone-timeâ€ push you can choose to spend a little less on marketing or maybe put that cleaning service on hold or simply cut down funding on any other projects in order to secure some money for the current one.
The main advantage of borrowing from the budget of other projects is that there arenâ€™t any interest payments, as you did not use any credit. But, this type of borrowing could put a â€˜hiccupâ€™ in other projects with unintentional consequences and blur the line of the budget.
- Negotiate Lower Costs
You could ask your accountant or bookkeeper to provide you with the last few invoices from one of the new suppliers and check whether thereâ€™s any product that you have been buying in bulk, which could be negotiated at a lower price.
You can talk to your supplier or have a meeting with them and then negotiate the prices and payment terms with them. If they agree to the proposed changes, then it is possible that they could implement the negotiated changes retrospectively, so as to trim down the present remaining invoices with them.
- Borrow from Yourself
Mixing all the funds is not the best idea for small businesses, yet it happens all the time. So, if you have personal funds to help you cover your businessâ€™s shortfall, you could lend just enough to yourself in order to receive a profitable pay check.
If you want, you can even do this at an interest, though that is often considered as â€˜robbing Peter to pay Paulâ€™. A big benefit of doing this is that there wonâ€™t be any interest payments. Also, this is the easiest and fastest way to get cash.
- Borrow from a Bank
Loans and lines of credit were created for circumstances just like these. If you have a good relationship with your credit union or local bank, then you can simply set up access to money so that youâ€™re able to get in the raw materials and labour, which you require in order to complete your orders.
If not, then you could still set one up, but expect it to take a bit longer. That is because it might be trickier to get approval and the costs involved will be greater. Borrowing from a bank is perhaps the more traditional approach and is way safer. Just bear in mind that most lines of credit have a long life span, and youâ€™ll be paying this back over months or even years.
- Arrange Payment Plans
You can call and talk to some of your more important suppliers- the ones who are crucial for the survival of your business- and arrange a specific payment plan for any remaining amounts, which at the moment you are unable to repay completely.
Also, ask them to work with you, whilst you get over this type of short-term financial hiccup and seek any advice from them regarding how the products that they supply to you can be further leveraged in the business.
If the suppliers are good at what they actually do, theyâ€™ll certainly have loads of options and ideas available so as to make it easier for you to continue doing business with them.
- Create a Personal Scheme
If as a business, youâ€™re taking partial upfront payments, then get in some more orders. You can even make use of the money from your new orders to cover the older ones and similarly use money from the next monthâ€™s orders to cover the present ones.
Ultimately, â€˜payment in fullâ€™ (PIF) payments would come in and youâ€™ll be able to square the accounts, thereby creating a cash reserve so that you do not have to repeat this process anymore. Such an approach can help save the day. By doing so, itâ€™d put you in a business expansion mindset, even when you are in crisis. Also, you are not required to pay interest.
- Use Business Credit Cards
A small business credit card is possibly the easiest and most well-known way for a business to access temporary funds. This works in a similar way to putting that holiday of yours on your personal VISA.
Almost every vendor in the world is ready to receive payments in plastic. It is one of the quickest ways to make a payment and you already have an understanding of how it works. But, it could be extremely expensive if you overextend your finances, which is easily done.
- Check if your Investments are Working for You
You must run a quick calculation over the investments you have made to ensure that they are working as hard as they should be.
At times, the investments that we make tend to take a backseat and it results in us forgetting about them. Whilst we are busy going about our daily schedule we fail to realise that market conditions constantly fluctuate, which makes some of our investments obsolete.
This will leave you with an investment strategy that has failed to keep up with the economic change. The reason why we invest is to amplify our wealth and thus, itâ€™s important to determine whether a certain investment is working for us or not.
Do check your overall investments to ensure you have got the best possible rates, terms and products available. Youâ€™ll also want every pound you have invested to be working at its maximum potential.
- Alternative Funding Options
If you require money immediately in order to get your cash flow in order or make more money in the near future, then a small business loan or cash flow finance may help.
Opting for alternative funding options are fast and flexible, at the same time, you donâ€™t have to pull away the resources from your other crucial projects. This might cost you more in comparison to borrowing from yourself, but definitely less than a credit card.
If youâ€™ve exhausted all your potential sources of finance whilst dealing with a shortage of funds and your business is still struggling for money, then you could possibly go for other options that might enable you to buy time to weather the storm till your business picks up.
Ultimately, the key is to act as quickly as possible so that you can give yourself as many options as possible. If used properly, this could surely be better for you, your creditors and your employees.