No small business is able to operate over the long term without generating sufficient cash inflows. According to Business Insider, 82% of businesses fail due to cash flow problems. Cash flow problems occur when more money is flowing out of your business rather than is flowing into the business. Even a profitable firm can find themselves in a cash flow crisis if it can’t collect enough cash to fund operations.
When business leaders have no strategy or plan in place for handling a cash flow shortage, a cash flow crisis occurs. In the event of a cash flow crisis, you need to be ready to take action and consider hiring an interim financial controller to help save your business from an untimely demise.
Your interim controller can help you with the following in the event of a cash flow crisis
1. Understanding Working Capital
Working capital is a financial metric which represents operating liquidity available to a business, organization, or other entity. Along with fixed assets, working capital is considered a part of operating capital. Working capital is essential to understand because it is a measure of a company’s ability to pay off short-term expenses or debts. It is also important to understand because if you have too much working capital, this means that some assets are not being invested for the long-term and not being put to good use in helping the company grow.
2. Accelerate Your Receivables
Any steps you can take to shorten your receivables process will increase your cash flow. There are several ways to do this. Your interim controller can help you decide which option is best for your small business. We have listed some of the options below:
• Offer a small discount to customers who pay their bills early.
• Charge a penalty to those who pay late.
• Monitor your receivables on a weekly or bi-weekly basis and follow-up with late payers when appropriate.
• Expedite the process for sending out invoices immediately after the delivery of goods or services.
• Revise your payment terms. If your current terms are 60 days, then change them to 45 days or 30 days.
• Offer credit. Be careful when extending credit and always do a financial check on new customers before offering them credit. Also, check their business references.
If you need a system to collect receivables faster, how much cash is enough? How much cash do you need each week or month to operate your business? A part-time financial controller can help you find the answers to these questions.
3. Negotiate Your Payables
An interim financial controller can present you options of how to delay or reduce the amount of cash flowing out of your company during a cash flow crisis. It is important to be honest with your vendors and negotiate payments or to inquire about potentially delaying payments. Although some vendors may not be willing to budge, odds are vendors whom you have been loyal will be flexible and work with you while your business may be experiencing a tough situation.
4. Consider Borrowing Options
One way to solve a cash flow shortage is to find a way to bring money into the business. Your small business is able to do this with a business loan or a credit card advance. Before your business takes on debt, however, you should be sure to understand the interest rates and have considered all other options. For some small businesses, borrowing money will simply kick the problem down the road to be addressed at a later date.
5. Slash Expenses
When starting a business, it is critical you always scrutinize every single penny that leaves your bank account. During a cash flow crisis, you will especially need to be critical of spending. As a small business owner, you must prioritize your company’s expenses. Eliminate all unnecessary expenses and only spend on the costs that keep you operational and generate revenue.
Limitless Investment and Capital’s Interim Financial Controller Services
When performance matters, you can count on Limitless Investment and Capital to deliver metrics tailored to your unique needs. Our controllers will manage all of the accounting functions in your company while providing timely, meaningful and understandable financial information and analysis. We ensure the integrity of processes, procedures and information systems and help everyone work together in their respective roles efficiently. Interested in learning more? Contact us Today!