Even a short-term financial problem might rapidly turn into a significant issue for your company. For example, if your firm doesn’t have enough cash on hand to make its payments to suppliers, things might swiftly spiral out of control, leading to bankruptcy. Therefore, it’s best to act as soon as you see that your financial reserves are running low.
While improving your business’s liquidity is vital to keeping your business going, you must also figure out the proper cash flow your business needs. There are two financial ratios used in measuring your company’s liquidity: the current and quick ratios. Use both of these together to ensure the continued success and even growth of your business.
- Talk to Your Financial Institution About Short-Term Funding
Talk to your bank about short-term finance alternatives. To assist you in overcoming liquidity issues, your financial institution should be consulted to extend your credit limit. If your bank is unwilling to help, look for other lenders or sell some of your company’s shares to an investor to solve your cash flow issues.
Another option is to make use of your banking institution’s sweep accounts. This allows you to generate income on any surplus cash balances by “sweeping” or moving the funds into an interest-bearing account when they aren’t needed and back to your active account when they are.
- Sell Off Assets or Extra Inventory
Sell any of your inventory or assets that are causing you to lose money. You’re losing money on anything that’s been hanging out in your warehouse for six months or longer. To get cash flowing again, discount any goods that are proving difficult to sell. Sell any assets you don’t utilize very often. If you have an extra delivery van that you only use occasionally, sell it and hire a vehicle when your firm needs it.
- Try to Decrease Overhead
Examine your overhead costs to determine if there are any that may be reduced. Your business’s profitability is directly impacted by lowering overhead. Outside of direct material and direct labor, overhead expenditures such as rent, advertising, indirect labor, and professional fees are indirect expenses that you spend to run your firm.
You should also track how much money the company takes out for non-business activities, such as the owner’s withdrawals. Taking too much money out of the firm might cause a cash flow problem.
- Review Accounts Receivable and Accounts Payable
Ensure your accounts receivable staff promptly bills your customers and pursue any outstanding bills the minute they move past due. Unpaid invoices might generate significant financial difficulties for your business. You can even consider giving your clients a discount if they pay their invoices on time.
Talk to your suppliers about new terms. For example, request more time to pay your invoices or inquire about purchasing inventory on a sale-or-return basis. If you’ve always been a loyal client, there’s a high chance you’ll be able to work something out, significantly if the new offer increases the number of products or services you may buy.