This article was written by Bern Lefson, SCORE Orange County Management Counselor
Given we are facing anywhere from 12 to 24 months or more of tough times small businesses must get into survival mode. This means taking any and all actions necessary to preserve cash, cut costs and monitor the cash flow.
While this is easier said than done here are some realistic things a business can do to survive.
- Cut expenses by asking the question: Is this activity or service necessary? In particular look at all your fixed expenses.
- Is it time to consider asking your long term vendors for better rates?
- Check the fiscal status of your lender. If it looks shaky, you might consider alternative lenders who will be there for you when you need them.
- If you hire a bookkeeper or accountant to do your books, get a cash-flow projection and keep this up-to-date. This may be crucial if you have a large commitment coming up.
- Your accounts receivable outstanding days are based upon how you bill and how accurately you do bill.
- Another way to improve your receivables is to find out what each of your customer’s invoice protocol, what timing to expect, and who to contact in case of an issue that can make decisions.
- Investigate sending invoices electronically.
- Try to have your customers pay invoices electronically.
- If you do not accept credit cards now consider doing so.
- Incentives to have your invoices paid on time may enhance your collection time.
- Track your spending by vendor and by category. This will help you see saving opportunities more clearly.
- Look at your phone bills for cost cutting opportunities. For example, VOIP or calls through your computer can cut your phone costs.
- Consider obtaining encryption application in order to e-mail documents instead.
- At end of day shut off your computers and printers to save on electricity.
- Forego raises or bonuses in order to conserve cash. Communicate the reasons to those directly affected.
- Consider changing to a four day workweek. Or reduce the workweek to 36 hours with corresponding pay.
- Consider giving an employee(s) an unpaid sabbatical if you wish to hand onto him/her but must reduce your payroll. Flextime may be another option that cuts your payroll but does not lose needed talent.
- If it becomes necessary to cut your payroll, be sure to do so wisely. This means don’t discriminate but keep the most talented to be certain you can continue to function. Just be sure to keep those retained happy by assuring them, to the extent possible, that you need them and the business needs them. Don’t make promises you cannot keep.
- Shift from a costlier PPO health plan to a lower cost HMO.
- Consider barter. Examine organized barter exchanges or networks. (Don’t skip the tax reporting if you do bartering.)
- As a cash raising technique, consider a “special inventory reduction sale” that reduces your inventory and keeps the place open with the cash received. Don’t let your customers think this business as usual so raising prices when events permit won’t be an issue except for customers who only bought due to the pricing.
In times such as the ones we are in, cash is king. Understanding and efficiently managing your cash flow is crucial to your survival. Some or all of the above are steps to be considered as you focus on survival.
