When a Crisis Hits and You Need Cash Flow–Look Here.

Brooke Lively, an Entrepreneurs’ Organization (EO) member in Fort Worth, is founder and president of Cathedral Capital, which provides strategic financial advice to drive profit by creating customized teams of financial professionals to analyze data trends and guide entrepreneurs through their numbers so they can predictably scale and grow their businesses. We asked Brooke what options entrepreneurs have when facing a cash crunch. Here’s what she shared.

Over the years, in helping companies pivot toward profitability, we have helped solve hundreds of cash crunches in various industries. I’ve learned that the biggest determinant of success was the amount of time we had until the cash crunch hit. The more time we had to solve the problem, the better able we were to avoid an upcoming situation.

While there are three main levers you can pull to impact cash flow, the most essential element to implement is a forward-looking Cash Flow Forecast that functions as an early warning system.

We recommend that clients look ahead six to eight weeks into the future on a week-by-week basis. Why weekly? As every business owner knows, not all weeks are created equal. The first and third weeks of the month are the most expensive because most companies pay rent the first week, and payroll often falls in the first and third weeks.

And if uneven outflows weren’t enough, revenue never seems to match it. Clients rarely care when an invoice is due. Even if your policy is net 10 or net 15, they seem to believe they have until the end of the month to pay. And as the end of the month approaches, clients start playing that game of “which bills really need to be paid?”

For business owners, this all boils down to three fundamental factors:

1. Expenses are predictable.
2. Income is estimable.
3. Mismatch is inevitable.

Because of these three factors, it’s crucial to create a Cash Flow Forecast that will tell you–as far in advance as possible–when you might face a cash crunch. 

Once you identify an upcoming cash crunch, you have options to deal with the looming problem. Here are the three main levers you can pull, plus a checklist to help you walk through the problem to find the right solution for your company.

Credit Cards. While credit cards are one of the most expensive options when trying to finance a cash crunch, most people have them or find that they are relatively easy to obtain. If you have available credit, shift expenses to the card to avoid your crunch.

1. Make a lower payment on your credit card if you have room after ensuring that needed charges won’t be declined.
2. Ask to have your credit limit raised.
3. Get new credit. It isn’t as easy as it used to be, but it is fast. When you apply for most cards, you get an immediate answer. Many companies will even give you a temporary number so you can make charges until your permanent card arrives in a week. 

Line of Credit (LOC). Every company should have a line of credit–whether you think you need it or not. Think of it as free insurance. If you have a well-established relationship with your bank, you can usually get one in about a week. If you need to shop for a new bank, it might take a little longer. Two things to note:

1. If your business is small, you will probably need to put a personal guarantee on the LOC, which means they will ask for all your personal financial information.
2. Ironically, banks prefer to lend money to people who don’t need it. So, it’s a best practice to secure a LOC as early as you can, use it to keep it current, and as your business grows, don’t be afraid to ask the bank to increase it.

Cut expenses. Ask yourself what isn’t necessary for your company to continue operating.

Move expenses. You can usually shift most bills and expenses. But never touch payroll! 

Change your salary, draw, or distributions. Consider whether you need all the money you planned on taking home. Sometimes it’s better to leave money in the company–but only if it won’t cause a significant hardship at home.

What can you sell to solve the cash crunch problem? We have found that in most cases, there is an additional product or service you can sell to your clients that will make a big difference in your company’s profitability. Think about how fast-food restaurants always ask, “Would you like fries with that?” It works for them–and it can work for you, too.