The tight economy continues to challenge owner-managers of small businesses to keep business loan payments current. This is happening at a time when many banks are changing lending requirements, and lines of credit are not being renewed – even for healthy companies.
Sometimes money gets so tight, many owners maintain operations with personal funds, even to the point of taking on second jobs to make ends meet. From my experience helping cash-strapped small companies in similar situations, I know increasing pressure can cause owners to abandon cash-flow basics, lose focus and go into panic mode.
The first thing I recommend to begin the recovery process is to step back and discover how much cash a business has on hand. Managing cash daily – remembering that cash is king – allows owners to focus on the creative side of their operations – the reason they started their businesses in the first place.
These are cash control commandments to live by:
- Reconcile your bank statement inside your accounting program.
- Enter all of the bills you receive into your accounting program daily.
- Update and enter all of your customer invoices and receipts daily.
- Change the terms of your accounts receivable when possible. If you have been offering terms of “Due in 30 days” change it to “Due in 15 days” or “Due upon receipt.” You may have to give a small discount to get your customers to cooperate.
- Complete the above steps, and use your accounting program to paint a picture of your cash position, not just your balance. Look at it.
- Prioritize the order that you pay your bills. Make a list of your top 10 creditors that are critical to continuing your operations. Pay these people first. For example, pay employees, payroll taxes, workers’ compensation and health insurance premiums, the bank, critical suppliers, and credit cards.
- Collect your receivables.
- Enlist your banker’s help. Bankers want to help, but you have to communicate with them. Be forthcoming with all of your information and ask for advice and guidance.
- Prepare a list starting with your total cash from the day before, add your deposits, and subtract checks issued and withdrawals to get your new cash balance each evening.
- Update the list of critical payments you have to make over the next 10 days.
- Prepare a budget. Ask your banker to recommend someone to help you if you need it.
- Talk to all of your vendors. Be open, honest and forthright with them. They know the challenges you face, and, like your banker, they want to see you succeed. Renegotiate payments with them. Do not over-promise because your credibility is the only thing keeping them from going to collections.
SmallBizSmarts Business Expert
Adjunct Professor, University of Denver
