How to Survive a Low Cash Flow Month

Is your business having a low cash flow month? A study from Intuit found that 61% of small businesses around the world struggle with cash flow. Having strategies to manage your cash flow is the best way to master long-term financial success, however, managing cash flow can be challenging for business owners.

As a small business, you want a positive cash flow. This means that your business is bringing in more money than it is spending, and you’ll have cash on hand to cover payroll, business purchases, loan repayments and other business needs. Negative cash flow is when the business is spending more money than it is making, and you may be unable to pay yourself or your employees and suppliers, cover your monthly rent, and have the money needed for any other daily business costs.

Being able to accurately project cash flow for your business will help you avoid low cash flow months. This will help you understand the revenue cycles of your customers, vendors, suppliers and contractors, and will help you get ahead of the market.

Five Ways to Manage Cash Flow

Adjust Your Business Plan to Improve Profit Margins

If you’re entering a low cash flow month, the most important thing is to determine why. Reevaluate your business plan, processes, operations, and expenses to see which areas of your business are the most and least profitable. This will help you adjust your business plan to focus on services that generate the most profit, let go of clients who might be costing you more money than you realize, optimize your pricing structure and also identify unnecessary expenses.

Accelerate Your Receivables

The sooner the money starts flowing into your business, the quicker you can solve some problems caused by low cash flow. Here are some ways you can accelerate your receivables:

• Ask new customers for a deposit or partial payment up-front

• Send your invoices early

• Send invoices more frequently

• Focus on your past due accounts

• Make it convenient for clients to pay by offering additional methods of payment

Negotiate Your Payables

Reducing or delaying the amount of cash flowing out of your business during a low cash flow month will help reduce the strain on working capital. Be honest with your vendors and try negotiating payment terms or inquire about delaying payments. However, do your best to maintain a healthy relationship with your vendors and avoid late fees. If you are unable to restructure payment dates, consider restructuring payment costs. Meet with new vendors that can potentially provide inventory and supplies at a better cost.

Adjust Your Inventory

Take a look at your inventory and identify products that aren’t selling well. These products impact your cash flow negatively, as you’ve put money into them that isn’t being converted to sales. You can address these issues by selling less frequently purchased items for a discount and not buying additional stock after they’ve sold. Focus your efforts on products that sell well.

Slash Expenses

The last move that any business wants to do is slash expenses, but sometimes it's necessary. During a period of low cash flow, you must prioritize your company, including eliminating all unnecessary expenses. Spend money only on the costs that keep you operational and generate revenue.