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How to Fight Through a Cash Flow Slump

There will be times when your business does not make expected earnings, new products fail to get enough revenue for your business, or you have many invoices to settle. This can make any business owner anxious and the cash crises can cause a lot of stress to you while straining your company’s resources.

However, this is a phase that every business goes through and a cash flow slump is no reason to throw your hands in the air and shut shop. Even in these difficult and unstable economic times, you and your company can survive a cash flow slump with a little common sense, courage and resourcefulness. Here are some ways that other businesses have fought through the phases of low cash flows in their companies.

Open a line of credit

Getting a line of credit for your company when things are going well is one of the best decisions that you can make for your company. This will keep your company safe and cushioned and will allow you to run your business until things turn around. When your company is facing a cash flow slump, you can use this line of credit to pay employees regularly, clear all the bills and pay crucial vendors so that the core business of your company is not affected severely by the cash flow slump.

Open a line of credit when the cash flow to your business is good and the rate of interest on a line of credit is low. Also, a line of credit works almost as well as cash and helps prevent the disruption of the day-to-day running of your business. A line of credit works much better than credit cards as there are many contractors and vendors who do not accept credit cards.

It is quite easy for a small business to get a line of credit extended by banks and financial institutions and most often, there is no interest rate charged when no money is withdrawn. The maximum amount you will have to pay for maintaining a line of credit is a small unused line fee when you don’t use it.

Salary restructuring

Even when the company is facing a cash flow slump, you can keep the best employees in your company and keep the company profitable by restructuring the salaries of the employees. You can reduce the base pay and increase the variable or the bonus section of their salaries. This will not only prevent you from making huge pay cuts but will also motivate your employees to work harder for an attractive bonus. Employees will be motivated to achieve goals, decrease expenses and work more efficiently.

Re-connect with customers

Contrary to popular belief, one of the main reasons that customers shift to another brand is not because they don’t like the products anymore, but because they are getting better attention from the other brand. During a cash flow slump, your company needs to reconnect with all the customers who have felt ignored and moved on to competitors. This is sound advice even when cash flow is good because the customer is king and you need to keep your customer base satisfied. Bring back old customers with earnest marketing letters and persuasive offers. This is one of the ways you can see an almost immediate surge in cash flow and increase your customer base.

Slash unnecessary expenses

This is one of the best ways to avoid more cash from draining out of the company and for making the company more efficient. When times are good, most small businesses don’t worry about those few tens of dollars that they end up paying every month for software, subscriptions, online accounts, and so on. However, these small expenses can add up to a lot of money and can increase the burden significantly when there is a slump in cash flow.

To find out about all those small and unnecessary expenses that are going unnoticed, you will have to comb through all your bills, bank statements and credit card statements. Find out the expenses that your company can do without and eliminate them. Do away with services that you don’t need when your business is cash strapped.

Make customers pay up-front

Like many entrepreneurs, you may think that asking customers to pay up front may be considered impolite or even rude. However, in times of cash flow slumps, asking customers to pay up front will help improve the cash flow and generate enough capital to invest in and develop new products. However, you need to make sure that customers get what they expect once they have paid up-front so that you don’t face problems and lose customers over less than perfect products or services. This will ensure that there is no drop in orders and that the relationship with existing customers is not damaged.

Prepare to part with your compensation

Often times, at the beginning of the financial year, your company may have to pay for more employees and additional equipment due to ramp-ups and other factors. Such situations may cause temporary cash flow slumps as improvements can be costly, but necessary. This is when you, as the business owner and founder, must step in and be willing to part with your bonus or compensation to fight the cash flow slump. You rest assured that you would get more than what you gave up to save your company once it is clear of the cash flow slump.

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