Steering Your Business Away from Disaster: 12 Steps to Avoid a Cash Crisis

Navigating a business through a cash crisis is like off-roading in a Jeep through a rugged national park. Imagine setting out in your trusty Jeep, the horizon vast, the terrain unpredictable. Just as the national park’s diverse landscape offers a mix of exhilarating highs and challenging lows, so does the business environment. Like maneuvering through a park in your Jeep, each turn and obstacle mirrors the unpredictable challenges businesses face—from managing cash flow dips to navigating unexpected financial hurdles.

According to a study by U.S. Bank, 82 percent of business failures are due to poor cash management. Avoiding a cash crisis requires foresight, agility, and an unwavering commitment to strategic financial management. Just as you would adjust your driving to match a rugged terrain, you must adapt your business strategies to maintain financial stability.

However, it’s not an easy path. In this article, we will explore 12 steps to help you avoid a cash crunch and maintain stability and agility in the face of considerable challenges.

1. Take Control of Your Cash

First and foremost, seize control of your cash flow—now! Not only should you monitor what’s coming in and going out, but it’s also essential to have a firm grip on every penny within your enterprise. Develop a comprehensive cash management process that identifies how much money is funneling into your business, where it is coming from, and where it is being spent in your organization.

The following tips can help you control and manage your cash flow:

• Establish discipline around how cash can be spent by the business.
• Forecast your cash position every week (see item # 2 below).
• Find hidden sources of cash.
• Shut off employee credit cards, and limit the number of signatories on company bank accounts.

In a world where cash is your business’s lifeblood, complacency and lack of visibility can lead to catastrophe.

2. Forecast Cash

Far too many business owners fail to forecast short-term cash needs and are then surprised when they don’t have enough cash to meet their goals, pay suppliers, or make payroll. However, by embracing the power of forecasting, leaders can predict potential cash crunches, and exert more control over their cash spending. A forecast allows you to anticipate cash flow challenges and adjust your sails before the storm hits. If you’re not forecasting, you’re navigating blind.

When implemented correctly, a 13-week cash forecast can be as easy as a 30-minute weekly check-in and offer a weekly view into the short-term liquidity of your business. Establish a frequency and process for forecasting your cash and stick to it. You won’t regret having that visibility into your organization’s stability.

3. Find Expense Savings

Dig deep for expense savings and cut costs where you can. This isn’t about pinching pennies—it’s about strategic cost management. Every dollar saved is a dollar that can be redirected toward stabilizing your cash flow. Think carefully about the critical tools and resources for your business, including their maintenance costs. Then, cut out the excess.

Challenge every expense, question its value, and don’t shy away from making tough decisions. Be ruthless in your consideration of every cost, and don’t be afraid to avoid upgrades, reduce travel, or restructure your org chart to be more efficient. When the cost-saving process is baked into your business, you can ensure that every expense is worthwhile.

4. Restructure Trade Payables

Revolutionize your approach to trade payables. The goal here isn’t to dodge your obligations but to restructure them in a way that aligns with your cash flow. Restructuring trade payables can convert them into manageable forms of debt outside of bankruptcy, allowing you to more effectively address financial obligations.

Negotiate terms that give you breathing room without compromising your relationships with suppliers. All companies should have oversight for processing trade payables, ensuring nothing is spent that the CEO or CFO doesn’t know about.

5. Eliminate the Organization of Deadwood

This might sound harsh, but in times of cash strain, you can’t afford to carry weight that doesn’t pull itself. Evaluate your assets, personnel, and operations, looking for underperforming or unproductive elements within your company. If it’s not contributing to your cash flow or bottom line, it’s time to let go.

Deadwood can create a negative atmosphere across the organization, draining resources and impacting overall morale. By eliminating those pieces and restructuring, not only can you become more efficient, but you can also create a culture of continuous improvement and a more dynamic workplace.

6. Accelerate AR Collection

Get aggressive with accounts receivable (AR) collection. It’s true that the squeaky wheel gets the grease. Don’t be afraid to be that squeaky wheel! Call your customers the day their invoice becomes past due, and continue to follow up until payments are received. You may also consider becoming more aggressive on credit terms offered or requiring cash on delivery (COD). At times, and for significant customers, it can be highly effective to have a senior leader participate in collection calls.

Your invoices aren’t just paperwork—they’re promises of cash. Tighten your terms, follow up relentlessly, and consider incentives for early payments. Your goal is to transform those promises into tangible cash as quickly as possible.

7. Don’t Forget about Factoring Receivables

Along those lines, don’t overlook the potential of factoring receivables. This isn’t a sign of weakness—it’s a strategic maneuver. Factoring receivables is one of the most popular ways for companies to grow their business and generate cash flow.
Here’s how it works: A larger company can buy a business’s unpaid invoices for cash advances, helping businesses receive payment for any outstanding invoices. By selling your receivables at a discount, you can unlock immediate cash. This can be a game-changer in tight situations.

8. Sell Nonproductive Assets

Like eliminating deadwood, selling off nonproductive assets is key to generating cash flow and avoiding a crash. This is about recognizing when certain assets are more valuable as cash than as part of your business. From obsolete inventory to machinery, equipment, and fixtures that aren’t producing income, they can easily be turned into cash, and reduce the cost to maintain them.
It’s a tough call, but remember, assets that aren’t directly contributing to your cash flow or strategic goals are a luxury you may not be able to afford.

9. Restructure Bank Debts

Rethink your long-term debts. The goal is to restructure these obligations in a way that alleviates immediate cash flow pressure and aligns with the current financial situation of your organization. This might mean renegotiating terms, interest rates, or repayment schedules. A good rule of thumb is that you should never ask your lender for more credit, more time, or expose your lender to more risk without being willing to give something up in return. Think about what you might be willing to give. This often includes additional collateral, a higher interest rate, a personal guaranty, or tighter operating requirements.

Restructuring bank debts can help you improve your chances of paying back your company’s obligations. It’s about creating a debt structure that supports, not suffocates, your business’s cash flow.

10. Restructure Long-Term Agreements

Don’t stop at rethinking your debts. Similarly, consider strategically renegotiating long-term agreements. This includes leases, service contracts, and any other long-term commitments. Renegotiating financial contracts can help you align contractual burdens with your financial obligations and infuse new capital into the business.

Your aim should be to align these agreements with your current financial reality, securing terms that are sustainable and supportive of your cash flow needs.

11. Consider Sale-Leasebacks

Sale-leasebacks are another creative cash flow solution to consider. This involves selling an asset and leasing it back for a period of time. It’s a strategy that converts equity into cash, providing an immediate boost to your cash flow while retaining the asset’s operational utility. For example, many users of sale-leasebacks are companies with high-cost fixed assets, like property, land, or expensive equipment.

Using sale-leasebacks could be a fit for you if your company needs to utilize the cash it has invested in an asset for another purpose.

12. Explore Alternative Financing

Finally, explore other sources of financing. Traditional bank loans are not the only option. Capital may come from many different sources, not limited to secondary b-tiered lenders, venture capital firms, crowdfunding, private investors, and friends and family. The landscape of financing is rich and varied. Be open to unconventional routes; sometimes, the path less traveled offers the liquidity your business desperately needs.

Steering your business out of a cash crisis requires a skilled turnaround consultant—like a seasoned off-roading expert—who can provide the essential guidance, strategies, and support needed.

At Amplēo, our team of seasoned consultants is equipped to help you navigate through the complexities of a cash crisis, driving your business toward recovery and growth. Reach out to us to begin the journey out of financial uncertainty and into transforming today’s challenges into tomorrow’s successes.