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TO-DO LIST
Don’t forget taxes
when forecasting
cash flow. If you’re profitable,
generally speaking
you’ll have to pay taxes,
probably on a quarterly
basis.
That could be a problem
because generating
profits isn’t the same as
generating cash. If you have
to report on an accrual basis
you could very well be profitable
but not have the cash
to pay. Again, plan for it.
1 2 3
Payroll taxes need to
be withheld from
paychecks, and accountants
advise you never mess
with that money. Business
owners ignore that warning
at their peril.
MANAGING
CASH
Five tips
for surviving
a cash crunch
Armed with a solid forecast, business
owners can pinpoint in advance the
time when they’ll run short of cash.
Gather your management team and
advisers together, and try these five
things, experts recommend.
Can you get a different form
1
of financing? For example,
asset-based lenders will
finance a larger percentage of receivables
and inventory than a traditional
bank will. (Banks typically finance 50
percent of inventory, while assetbased
lenders may go as high as 75
percent, for example. Of course, that
money will be more expensive.)
Can you stretch out your
2
vendors? Calling vendors
and asking if they’ll give you
longer terms, 90 days instead of 30,
for example, is a common tactic. They
might want to see financial statements,
and they might charge you
more, but if you’re a good customer
and they’ve been there themselves,
they’ll likely do it.
Can you shorten the time in
3
which you get paid? Offering a
discount to those who pay
early is a possibility, although that can
set up a negative cycle, with less revenue
coming in. You also have to be careful of
the competition; if others allow more
time to pay customers will migrate there.
“A customer isn’t going to pay early
unless you make it worth their while,” is
how one local expert puts it.
4
Can you reduce inventory? A
lot of companies carry more
inventory than they need.
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clickable resources
Analyze the cost and benefit of a perpetual
inventory system to track
inventory. Companies that begin
counting their inventory every month
often see large savings in time; they
usually can cut down on ordering, and
they can make moves such as a promotion
at a discount to sell slowmoving
items.
Can you turn to family and
5
friends? If you can’t borrow
from commercial sources,
borrow from family and friends to get
through a crunch. Be sure to document
all loans or other arrangements;
no winging it allowed, because it can
cause problems down the road.
Upsize Nov 02: Asset-based loans tap value of firm’s inventory,
A/R, by Chuck Mueller, Fidelity Bank • Upsize Nov 02:
No bootstraps: Where to look for capital to grow. By Scott
Riser, Virchow, Krause & Co. • Upsize Nov 03: Beware good
times: owners need to adjust when sales pick up: John Kimball,
Associated Bank • Upsize Jun 06: Other sources of capital
abound: here are seven. By Steven Siem, Power Plan
Financial • 51 ways to cut costs and increase cash flow •
Cutting costs in business
“Don’t ever, ever, ever miss your payroll taxes.
The penalties are enormous.”
QQUOTABLE
— PHIL KRONLAGE, BPK&Z
UPSIZE | 16 | ONLINE
NOV08