How to Handle Cash Crunch in Small Businesses

There are some situations you would come across as a small business owner when you might face a cash crunch, such as, hiring too many employees, when there is an imbalance in the estimated flow forecast, paying salaries or ordering excess inventory. The financial tide can move up and down and you can only hope that the lean periods fall far apart from each other. If you do face a cash crunch, you may need a push ahead by bringing an influx of money into your business.

Here are 3 routes you can consider.

•   Online Lending

If you need a small loan, opt for online lending. With the advancement of technology, online lending has become faster and more efficient. In fact, as a small business entrepreneur, you can expect to receive a loan within a few hours of contacting an online lender. And the best part? The rates offered are surprisingly competitive.

•   Personal Line of Credit

Personal line of credit is a useful loan that you should consider. With this, your business gets approved for a certain amount of money for a specified period of time and you pay interest only on the amount you use. If you need the money, you can simply withdraw on the line of credit just like you would with cash in your bank. When you don’t need the money, just leave it there without having to pay any interest on it. There are numerous personal line of credit lenders who offer you the best of both worlds — they allow you take a line of credit when you aren’t sure how much you will need or when you will need it.

•   Loans

The most common method is the traditional small business loans since their structure is simple and easily understood. The funds are usually secured against capital assets and the interest is levied at an agreed rate, in addition to fees and set-up costs. The loan appears as an ongoing debt in the company’s accounts and will be taken into consideration if you need to borrow again in the future.

4 Tips to Preempt Cash Crunches

If you are experiencing business cash flow problems, it is best to nip the problem in the bud and act quickly. Here are 4 tips that will help you regain control:

1. Auditing the Finances

Conduct a review of all the outgoing and incoming revenue streams to understand where you can save or improve your processes. One strategy that can have a significant effect on turnover is to upsell the complementary products or services alongside your main offering.

2. Cut Costs

You must streamline your costs regularly by moving to best tariffs and deals. While it may seem simple, you can make significant savings in the process. The service providers wouldn’t want to lose your business and the idea of that itself will make them offer you a better deal that allows you to save money on a monthly basis.

3. Prioritize Credit Control

As a small business owner, you need to know how much money is owed to by company at any given time. You need to prioritize the collection of money as it will help in maintaining a positive cash flow through the business.

4. Maintain Financial Records

It is very important to maintain proper financial records. Hire an accountant who can create accurate management reports that provide a daily update on your cash position which could help you avoid a steady decline into insolvency. You may even face accusations of unfit conduct as a company director if you fail to maintain and keep accurate financial reports.

Taking a personal loan is unavoidable when you face a cash crunch but when you do take one, ensure that you get a good deal which works in your favor.

About the author:

Shiv Nanda is a financial analyst who currently lives in Bangalore, India (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit line. He is a true finance geek who enjoys helping people with money management, and his friends love that about him. They always turn to him for advice on their investment choices, budgeting skills and personal financial matters. They also seek his approval before applying for a loan, credit card or any other type of credit. Head over to MoneyTap’s blog to check out Shiv’s other articles, or click here to learn more about MoneyTap’s flexible personal loans.