As banks and lenders have slowed lending, reduced credit lines and tightened lending standards, many small-business owners have felt the effects of a cash crunch.
Small businesses face fixed costs in overhead expenses, payroll costs and equipment and space leases, while product and service demand may be in decline. The February NFIB poll states that 58 percent of those surveyed see profits declining and 28 percent have already lowered prices. Price declines put pressure on cash flow for small businesses.
Each month, as part of the “Accelerate Your Success” Campaign, SCORE features a new online toolkit to help entrepreneurs with information on how to survive the recession. This month is all about access to cash at www.score.org/accelerate. SCORE also offers these tips on five secrets to beating the cash crunch:
• Sell more and collect payment at the sale. In a tight economy, you can sell more by adding a service contract. Bundle products into a package with a slight discount. The client pays less and you get a bigger sale while still keeping solid profits.
• Collect more upfront and set up progress payments. Every SCORE mentor will say collect the funds you are owed and do it quickly. Whenever possible, collect a deposit upfront. In contract arrangements, set up the project for progress payments as key milestones. For everyone, put a collections policy in place and follow it to collect what you are owed.
• Save more by cutting expenses and holding on to your cash. Look at cutting expenses 10 percent. Spend what you need to market and operate your business. Don’t stock unnecessary items, print large quantities of branding materials or commit to long-term contracts. Keep your cash in your business as fuel through the recession.
• Borrow funds for bridge capital until customer payment is received. A line of credit is a good way to fund bridge capital. If you have a good credit score and track record in business, your chances for a line of credit go up dramatically, even in tighter credit markets. If your credit score is not as strong, explore an SBA-guaranteed loan. Community banks and the bank you do business with day-to-day are good places to start.
• Slow your payments to vendors. Another way to free up extra cash is to slow or reduce your payments. Contact your vendors, lenders and credit card companies to renegotiate your rates, fees and repayment schedule. The key is to do so before you begin to have payment issues. You should be able to leverage your good repayment history to get more advantageous terms.