Financial Briefs

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Managing Cash Flow During Tight Times

In these unstable economic times, virtually every business—from mom-and-pop drugstores to multinational conglomerates—has cause for concern. But the strain may be especially pronounced for small businesses facing what has become a deepening credit crunch. If you’re like many owners of such companies, your cash reserves have been eroded just when lending has dried up. It may be difficult to secure a loan to buy a new car, pay your child’s college tuition, or keep your business afloat until conditions improve.

At this point, though the government has made a concerted effort to get credit flowing again, no one knows for certain whether those actions will work or how long it will take before loans become readily available at reasonable rates. But you don’t have the leisure to sit on your hands and wait for brighter days. Some of the suggestions that follow directly address cash-flow issues, while others could have a less immediate but equally important impact on the health of your business.

Analyze company expenses. Scrutinize your income statement to see where you’re overspending. Highlight cuts you may be able to make without affecting quality or customer satisfaction. And keep in mind that no expense is too small or insignificant—if you can find a few items costing only $50 or $100 a month, that may add up to appreciable savings over time.

Expand your product line. This may be difficult when cash is scarce, but if you can provide a new essential product or service that people need during the economic downturn, it could add to your revenues and improve your balance sheet.

Think outside the box. When the going gets tough, the tough get creative. Assess your company’s strengths and weaknesses. Then match them to a market need. It’s far better to revamp your existing operation than it is to start from scratch after an economic meltdown.

Become “lean and mean.” Even if your business has managed to sidestep the downturn thus far, you’ll likely feel the effects eventually. So plan ahead for the inevitable. You might build up cash reserves, scout out profitable opportunities, restructure under-performing departments, postpone capital expenditures, and pay off debt.

Schedule a meeting with your banker. Although you may not be angling for a loan right now, it still makes sense to assess your credit worthiness, and your banker may have insights into how to shore up your position.

Extend your credit lines. Even now, if your standing is rock-solid, you may have a chance to apply for additional credit. That could come in handy if your situation worsens.

Reach out to your customers. See how they are faring and what you might do to help them weather the economic crisis. That may not improve your balance sheet but it will help foster long-term customer loyalty.