Ways to Rescue Your Startup From a Cash Flow Crisis

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Managing cash flow is one of the most challenging parts of running a small business, especially during the startup phase. Even if your profits are good, big expenses and slow collections can leave your bank account empty. To avoid this cash flow crisis, here are four strategies to help you get the money you need in a pinch.

Know When to Use Credit and Where to Get It

The easiest place to turn when you need cash is a small business lender. If you can prove your business is profitable, you should be able to secure the amount of cash you need. This gets more complicated if you need a very large sum of money. However, it’s much easier to apply for a line of credit before you need the funds. Kabbage has low-interest, small-business loans that are a great place to start.

Minimize Overhead Costs

Some businesses require more startup cash than others and have higher overheads. For instance, a car dealership must spend a lot of money to buy cars to sell, but it takes a long time to sell all their inventory and make a profit. If a dealership doesn’t have the cash to stock their lot, they can’t operate. To avoid this sort of cash flow problem, never purchase assets if you don’t immediately need them. Business could be booming, but you could still go bankrupt if you don’t manage your cash properly. Always look for ways to keep your overhead costs at a minimum.

Offer Early Payment Discounts to Clients

It’s exciting when a big retailer agrees to carry your product, but it can quickly sink your businesses if you don’t have the cash on hand to fulfill the deal. A creative way to ensure you have the money is to offer an early payment discount to your clients. For instance, a retail store could pay you in advance for the inventory and in return, you could give a price discount. This isn’t always possible but is ideal from a cash flow perspective. It gives you immediate cash instead of waiting for the funds to trickle in throughout the year.

Ask Vendors for Extended Payment Arrangements

When you take a large order and must buy all the materials to manufacture your product, you can sometimes ask vendors for extended payment arrangements. These negotiations can help you keep cash on hand for other expenses. When it’s not possible to extend the contract payment schedule, you can ask if the vendor will discount current bills if you were to sign a longer purchase agreement. This will also help with cash flow.

One of the biggest reasons startup businesses fail is a cash flow problem. They may have an awesome product, but they don’t have the money to scale as quickly as they’d like and they take unwise risks. Don’t make the same mistakes. Be very aware of your cash flow situation at all times and have a plan in place for where you’ll get money when you need it.