Navigating a Cash Flow Crisis: 3 Steps to Survive and Thrive - 11/9/2024

It is the dead of winter, the early morning frost covered the sidewalk just enough to be slippery, my friend who owns the plumbing company is waiting with his crew for the superintendent to come out of a low-rise apartment building with 12 2-bd units. He didn't have a hat; his ears were numb. This is the sixth building in 2 months with a busted boiler.

His crews were busy, installing new boilers and fixing equipment so people have heat and hot water, is lucrative, but many of the recent invoices were going unpaid, and he was buying equipment. His cash reserve was getting low, and his credit lines were tapping out.

The last few calls were from non-profits running affordable housing, unfortunately, they didn't build enough capital reserve to pay upfront for an expensive purchase like a boiler. Standing in front of the building, he couldn't feel his fingertips, he was used to this but didn't think the residents in this building could endure. He grew up in a lower to middle income household. The heat was always turned down low in the house.

He did the mental math; he needed other financing options. Already opposed to factoring, and their heavy-handed approach, he was not about to risk the relationship of the business owners so opted for a unique approach to outsourced in-house financing. As a result, those residents had heat and hot water that morning, the building owner paid affordable monthly payments, and he covered the cost of his crews and the boiler manufacturer.

Like river rafting, navigating a cash flow crisis, can mean going with the flow, but you should be prepared to change direction, speed up or slow down to avoid drowning.

Excerpt from: Breaking Barriers: Overcoming the Top 5 Financial Myths that Keep You Broke - A Guide for the Small-Medium Sized Business Owner

Having liquidity for a rainy day - When they say, it is darkest before dawn rings true for businesses (i.e. net 60+). Just as you are getting to where you need to be, a sudden liquidity crisis might mean you can no longer afford to run the business...

- Prioritize Key Expenses: Owners should consider financing and deferring capital expenses by recognizing the use of extended terms while ensuring critical operations are maintained.

- Negotiate Terms on both B2B and B2C: Leveraging third party financing that is business-forward can improve conversion rates and accelerate receivables. This will smooth out cash flow.

- Optimize Cash Flow in Real-Time: One size fits all proposals often falls short because it doesn't reflect the current financial situation. Flexibility in payment options can help the business and customers identify the optimal structure so both sides win in the deal.

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