Unraveling cash crunch tight spot

We as the business nerds, are fully cognizant of the ups and downs of any business venture, the major one being the fluctuating nature of cash flow. At some point, things appear to be serendipitously working for our good with nothing to fret about. This is when the rate of stock turnover is high and profit margin widen remarkably. You have cornered the market in other terms. 

Most probably it is during the festivities and sales are so high you can’t meet the demand of your consumers. Brilliant! This is the point where you want to expand so badly. The office space becomes so small. You are itching to triple the number of your employees, and yes, you can’t be right considering loads of work. You place that advert and the applicants come knocking. 

You cannot resist the urge to acquire two more business vehicles, making them four. And that is legit too. They are useful for delivery and the business is expanding any way. After all there is money! Finally, you bow to the personal pressure of acquiring your new personal car, your dazzling dream car. Hooray! Sounds like it’s the best place to be for everyone, me topping the list.

But as they say, anything can happen any time. Mark my word, (to quote Daily Nation’s Philip Ochieng), I said any time. If you don’t believe me ask Job in the Bible.

There comes a time when customers vanish into thin air. The rate of stock turn over gets low, below sea level. It is end month and sheets are far away from balancing. The budget squeeze has set in unexpectedly. It is probably during the general elections and the country is loomed with uncertainties. The economy has stooped so low ever since everyone is holding their money back, citing fear of the unknown. 

But even with all these, the rents and salaries remain what a physics comrade would term as a constant variable. Bottom out is the term that can best describe the situation at hand. 

The banks and your creditors, out of nowhere, get on your neck as if they don’t seem to understand your state of affairs. You try to call a loan but your debtors are out of reach, or things are tight for them as well. This is when you seem to have bet on the wrong horse somewhere, but where? The only thing crossing your mind is who will bankroll you. 

At such a time, as we all must agree, is not a time to take any offer around from business angels. It is not a time to take more loans. It is not a time to falter.

Many researches have shown that many startups and even existing businesses alike crumble at this stage because of the business owners’ failure to understand the importance of a positive cash flow and how to maintain it.

Here are some tips on how to deal with the status quo efficaciously and remain afloat.

•         Downsize the operations.

This means you cut on expenditure in terms of day to day operations. Is your office too big? Relocating to a smaller office space will mean you spend less on rent.

·        Negotiate with employees and explore ways of reducing their salaries.

Delaying the payments and if possible reducing headcounts is another way around the mountain. 

•         Prioritize debts  

Be highly active in contacting people you owe money and precisely explain your situation. This includes banks. Yes I said banks. Most banks allow their clients to negotiate lower debt payments.

•         Liquidation

Sell what the business doesn’t need any longer, or less useful, exempli gratia, business vans, unnecessary office furniture, old equipment, and old laptops and unused old technology. Consider liquidating even your personal vehicle.

•          Increase your working capital.

Ask for partial invoice payment even if they cannot pay you everything. Be active in following up with debtors who owe you large amount of money. Remember it’s the squeaky wheel that will always get the grease.

•          Layoff

This is the hardest bit to most of the CEOs, me included, but very vital in such a crucial trying moment. Remember, as the owner of the venture, hiring and firing is the order of the day, for the good of the business. Layoff will lead to increased profitability due to reduced cost of production but I must warn of overloading those who remain.

Strive masiyiwa in his article writes, if you have people who know what they are doing and are well motivated to deliver for the business, that is central.  This implies that layoff is not always the way to go in dealing with the cash crunch. 

A quick glance on what to avoid during cash crunch tight spot;

First, never compromise your honesty. Let your no be no and yes be yes. It is better to get into a cash crunch with good integrity and a great reputation. This will prompt many people to help you. 

Second, it is not time to compromise relationships or financial future by undertaking foolish steps like gambling, stealing or misleading people. 

Third, avoid getting into more debts. Instead consider liquidation as a better alternative.  

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