Managing Through a Cash Flow Crisis

It’s not unusual for a small or medium sized business to go through a cash flow crisis at some time or another over their life of operation.  In fact, for many businesses, survival of the bad times when cash is thin can even be considered a right of passage towards greater loan term success.

Why?

Because going through a very tough period when its hard to make ends meet can be mentally and emotionally draining, leaving a permanent imprint in your brain that 1) you never want to go through that again, 2) you have a much better understanding of how to manage cash flow due to the intensive focus that was required, and 3) you will not likely take cash flow management for granted any time soon.

The biggest challenge of dealing with a shortage of cash where there is less money coming in versus the demands for payment is being realistic with yourself as to what you’re working towards.

A cash flow crisis has to become an internal bridge financing scenario or you’re just putting off the enviable which is business failure.

If you aren’t trying to survive to get to a certain point where events will occur that will correct the problem, you may very well just be destroying your equity and throwing good money after bad.

So no matter how well you count the beans or negotiate with creditors, you can’t play musical chairs for a prolonged period of time with the people you owe money to.  There has to be a defined turnaround point that you’re working towards otherwise how do you make cash flow trade offs or negotiate extended repayment terms.

Lack of a turnaround point somewhere on the near horizon will destroy your credit and credibility, both which are very hard to get back.

The key to managing through a cash flow is project far enough a head to a point where inflows are going to be able to meet or exceed outflows on an ongoing basis and work back from that point to figure out how you’re going to manage through with the funds available and any incremental funds you may be able to acquire.

By doing this, you now have a plan you can sell to your creditors.  If you manage the heck out of weekly cash flow during the crisis, there is a good chance you can get to the otherside.

Just make sure you know where the other side versus staying alive long enough while hoping for something positive to happen.

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About the Author Brent Finlay