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Electrical Testing
Curing the Cash Crunch

Curing the Cash Crunch

Don't skimp on essentials or resort to underbidding to solve cash flow problems.

The No. 1 reason businesses fail is they run out of cash. So when cash gets tight, you’ve got a problem. How do you fix it?

Here are some “solutions” to avoid:

  • Skimping on essentials. Cutting back on safety or training saves money in the short term, but the false economics may become painfully clear when employees are injured and callbacks cause financial hemorrhaging.
  • “Borrowing” from withholding taxes. This isn’t your money to borrow. Keep your hand out of that cookie jar, or you may face criminal charges.
  • Underbidding jobs. That mistake is probably why you’ve got cash flow problems now. Show your customer why your bid is the best, even if it’s not the cheapest. Focus on quality, service, reputation, and speed of delivery. Show pictures of your best work.
  • Telling crews to cut corners. Yes, you may save some money by doing substandard work. But how does that get you the referrals and repeat business you desperately need right now?

Here are some valid solutions to consider:

  • Trade credit. Work out deals with your vendors. Ask them what it would take to get you longer terms or discounted pricing. They probably need your business as much as you need them.
  • Refinancing. Talk with your lenders about paying off existing loans with a newer loan at a lower rate. Or explain your cash situation and ask them what they can offer.
  • Balance transfers. Many small shops live on credit cards. Many card issuers offer low-cost (1 percent to 3 percent) balance transfers. You can transfer some amounts between cards, and get some financial breathing room.
  • Targeted sales. Contact existing customers, and offer some specific service at a break-even price. You know your customers; offer to do something they need done. This is much cheaper than a traditional loan. But plan these offers based on how much cash you need to raise.
  • Speed up invoicing. Always invoice promptly, then follow up before payment is due to ask if everything is OK with the invoice. Watch those due dates. When a payment is late, contact the accounting department and ask them pleasantly to look into why the invoice hasn’t been paid.
  • Offer financing. One reason for poor cash flow is underbidding too many jobs. But another reason is letting customers pretend your business is a bank that provides interest-free 180-day loans. Stipulate net-15 as “FREE” on your bids and invoices, but also offer a schedule of fees for other terms.

That last bullet point is perhaps the single best thing you can do to solve cash flow problems. It will work wonders on receivables, and thus your cash flow. Your customers think they are getting something for nothing, the same way they were getting something for nothing by simply taking free 90-day financing from you previously.

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