10 Tips to Survive a Cash Flow Crisis

ALEXANDRIA, Va., Sept. 29 /PRNewswire/ -- For small business owners and
entrepreneurs facing a cash flow crisis, it feels like the world is closing
in. You're in trouble. You're not sure how you're going to meet payroll, much
less other essential bills.
Rusty Luhring, who has spent three decades as a consultant and financial
software developer, is passionate about aggressive management of cash flow and
freely shares his tips and experiences at http://www.survivalware.com. His
most timely advice? Telling people to take immediate action-before their cash
crisis escalates. "They need to do some detailed planning to understand the
magnitude of the problem, and when their cash needs are greatest," he says.
"Similarly, they can bolster cash flow by thinking outside the box about
invoicing and collections."
Having bootstrapped two start-up companies, starting in the late-70s, he
has a lot in common with those seeking his help. He offers the following 10
steps to help business owners and entrepreneurs to start regaining control of
their cash flow.
1. Triage payments
Make a list of all payments due for the next three months. Give payroll
priority and see what else you can negotiate to pay later. You may be able to
slide with utilities; subcontractors can often be persuaded to wait a bit.
2. Accelerate collections
Call customers to check on payments that are overdue, or due soon. If you
have a good relationship, you may be able to ask for early payment as a favor.
For older accounts receivable, offer to forgive 15% of their overdue balance
if they pay within the week. This may encourage them to respond and it's less
costly than hiring a collection agency to go after receivables you may never
see.
3. Invoice early
If you consistently send out invoices a week late, you are delaying
receipts by a week. If you average $7,000 a week in receipts, the net effect
is that you have $7,000 less to work with. If you take 10 days to send out the
invoices, it's the same as if you need another $10,000 in working capital to
run your business.
4. Offer discounts
This invoicing carrot can speed collections, but make sure that you
understand how much it is costing you. Some large companies have policies in
place that require speeding payments to earn discounts, e.g., 2% for paying
within 10 days. But beware: Suddenly offering a 5% discount for payment in 10
days could give out the wrong signal.
5. Invoice more frequently
If you are billing customers for time, consider billing twice a month
instead of once. Billing promptly on the 1st and 15th of the month speeds up
immediate cash flow.
6. Ask for some payment upfront
Instead of just billing for time as it is incurred, ask for a third
upfront, a third while the job is in-progress, and a third upon completion.
7. Fine-tune the timing of your payables
Take advantage of the maximum allowable time (60 to 90 days) to pay
suppliers. Picture it as an interest-free line of credit that gives you more
time to collect accounts receivable without spending money on short-term
credit lines. If your payroll withholding taxes total less than $50,000 per
year, remit the withholding on the 15th of the following month, instead of
three days after payday.
8. Ask the right people for a loan or investment
Remember what they say about banks: They will lend you money only if you
can prove beyond a shadow of a doubt that you don't need it. Outside investors
will sense your plight and demand onerous terms. This is a time to turn to
friends and family and/or to get creative. Key customers might be able to help
you out by advancing money to undertake a new product or pre-paying for
products in anticipation of future demand.
9. Manage your credit cards
Many credit cards offer a cash advance credit limit that is separate (and
lower) than the overall credit limit. Take the time to track the balances and
credit limits for cash advances vs. overall purchases separately. Create a
simple spreadsheet, and update it as the bills come in. When things get tight,
make sure you charge whatever expenses you can to those cards that still have
available merchandise credit, but no available cash advance credit. During a
cash flow crisis, you want to maximize your available cash advances as they
are almost the same as cash.
10. Consider layoffs
While large companies can take advantage of "redundancies" and "synergies"
in downsizing their staff, it's more difficult for small business owners. Each
employee has his/her own specialized revenue-generating abilities. Instead of
letting go entirely, discuss rehiring them as freelancers. It reduces the
costs of health insurance, payroll and stock options for you, and increases
their freedom and provides time for them to seek out additional work from
other companies to boost their income.
Now what?
Going through these ten steps should give you some ideas of where you can
delay payment, speed collections, or find additional cash. "Make the calls,
send the e-mails, and write the letters," advises Luhring. "Then get back to
working on your business, making it the success you know it can be."
About LSI
Luhring SurvivalWare, Inc. (LSI) develops, supports and sells financial
modeling and cash flow planning software. LSI released a new version of
SurvivalWare in 2008 that bundles an entry-level Cash Planner with a
sophisticated financial modeling platform. The Cash Planner is designed to
help entrepreneurs survive severe cash flow problems by juggling payments to
fit estimated cash flow. The modeling platform targets small and medium sized
businesses, helping them survive and thrive in the face of financial
challenges.
Customers can use the all-purpose model delivered with SurvivalWare, or
one from a growing list of vertical market models developed by LSI and third
parties. More information is available at http://www.survivalware.com.
To download a trial version of SurvivalWare 2.01 or to receive LSI's free
e-newsletter, visit http://www.survivalware.com or call 703-780-2044.
SOURCE Rusty Luhring

Laura Lang for Rusty Luhring, +1-703-272-3581, Lang@KeatingLang.com