Most businesses fall into 3 buckets:
- Consistent cash outflows or on the brink
- Inconsistent cash generation or “running in place”
- Consistent cash generation trying to figure out how to spend it
Let’s start with a brief “playbook” on managing a tight cash situation in an attempt to move from the first bucket to the 2nd bucket:
- Build your 13-week cash forecast (13WCF) — This is your short-term cash planning tool… use it to plan upcoming collections and outgoing payments. If you’re losing sleep or constantly caught off guard by cash surprises, start here.
- Track daily cash metrics — Cash runway, EOD cash on hand, LOC availability, receivable balance, A/P and credit card balances, upcoming payroll… start a new spreadsheet, update it every day during your cash huddle (#8 below)… you’re in triage mode and want to keep these front-and-center to manage them tightly
- Start bird-dogging your A/R — Much of cash management is balancing timing… which inflows can you accelerate and which outflows can you eliminate or delay? When cash is tight, A/R needs to be reviewed and managed on a daily basis.
- Beat up your expenses — All discretionary spend like travel or wish-list projects need to be paused. Other expenses should be reviewed for potential elimination. Which ongoing costs can you live without? Maybe that “nice to have” software can be eliminated until you’re on sound footing.
- Track and monitor your “must pay” vendors — Every business has “mission critical” vendors or expenses. If you’re an inventory-centric business, it might be a few key product suppliers, or maybe certain people on your team if you’re a service-based business. Think of this as your “A” list and make sure you’re well aware of upcoming payments for this group.
- Ask for temporary relief — Call your banker, landlord, or other vendors with fixed monthly obligations… explain your situation and request a reasonable payment deferral based on your runway or 13-week forecast. Do not skip to this step until you have a firm outlook on your situation because you’ll need to share that outlook with these vendors. Try building a 1-pager with a snapshot of liquidity, 13-week summary, actions being taken, and weekly cash metrics.
- Find more liquidity — Once you’ve tackled the basics, it’s time to start searching for additional funds. The cost of this capital might feel predatory (and it can be); but if the name of the game is survival, then it might be necessary. Forms of “rescue financing” could include: new credit cards, A/R or PO factoring, merchant advances (i.e. Stripe, PayPal, Shopify, etc.), friends & family.
- Communicate with your team — Overcommunicate when things are tight, especially with your team. Kick off a “daily cash huddle” with your manager staff to review all the pieces and what’s changed from the day before. Don’t bury your head in the sand, keep vendors, bankers, and customers informed as needed; share your plan of action as necessary, this will buy goodwill when things turn the corner.
Many of these are straight out of the turnaround playbook with an emphasis on short-term cash management.
These tactics are best suited for struggling or inconsistent cash generators, but most of these are best practices for any company in any financial situation.
Ultimately, you’ll still need a robust financial management system to ensure profitable revenue growth. So consider “cash flow triage” a phase 1 when it comes to fixing up a struggling company.