Short on cash?
It's every small business owner's nightmare - you're short on cash and you can't pay all your bills. When your cash flow falls short, it can be embarrassing but remember that you haven't failed - it happens to most businesses at one point or another. Hold your head high and remember that the survival of your business depends on what you do next.

There can be a number of reasons for being short on cash and it is highly possible it is simply just tied up in other places, such as:

  • Suppliers you have paid too quickly
  • Customers who are slow paying
  • Surplus or slow moving stock
  • Work not yet invoiced
  • Leased equipment

The situation is far from hopeless. You can save your business by taking some steps to pull your firm out of the nightmare:



Safety cash



Have a plan in place - actually, have two. Plan your cash flow requirements regularly so you are prepared for differences in your payment terms (those you provide your customers and those you receive from your suppliers). If you aware of gaps between the two, you can be better prepared for any shortfalls that may occur in receiving and making payments. It is important that you regularly update this plan if your payment terms of key expenses change. Monitor your cash flow closely as the quicker you get on top of any cash shortages, the quicker you can set about getting back on track.

Your second plan should cover what to do if your cash flow falls short. Consider the options available to you and decide which will work best for you. These options could include:  

  • cost cutting
  • collecting payments owed
  • obtaining an overdraft from your bank

Next, consider if you want to talk to your bank or your suppliers first. If you decide to approach your suppliers first, you should prioritise your payments. Your plan should outline which bills are most important (salaries, rent and key suppliers should make the top of the list) and pay these first. For the remaining suppliers, determine how you will get the money to pay your bills and within the time you need. You can also approach your bank for an overdraft. Before you do this, make sure you have plan to present of what actions you are taking and can demonstrate how you are capable of repaying the loan.

Unsure if an overdraft is the way to go? Read Bank overdrafts " are they right for you? >>

Communicate early

As soon as you become aware of any cash flow issues, talk to your bank (and suppliers if necessary). It is best to start talking about your options before payments fall due as it will provide you with more alternatives. If you're on the ball, a financier should be able to provide a suitable financial solution before it is too late. Banks are going to be very wary if a business needs additional cash and needs it right now so if you leave it to the last minute or once the payment is already overdue, your chances of getting back on track will have started slipping away. If you leave it too late, you run the risk that defaults have already occurred or a collection agency may have been engaged.

If you decide to approach your suppliers, they may be willing to temporarily adjust your payment arrangements. Just be sure to explain your situation and full intention to pay the outstanding amount as soon as possible. However don't be dejected if they refuse, it is their choice just as you have the same right if a customer asks you to adjust your payment terms.

Also be sure to be honest, particularly with your bank. If you sugar coat the situation and don't tell the bank all the facts, it will be difficult to find a suitable solution and you may end up in an even bigger mess. Show your bank you are on top of your finances, are proactive in seeking assistance and are comfortable in being up front about the situation.

Safety cash

If you are in the position to do so, keep a source of short term cash available. Calculate how much your firm would need to tide you over if business slows or there is a gap in your cash flow. A rough calculation may include the amount outstanding in accounts payable, in long-term debt payments and a period of payroll (from two weeks to a month). This figure is an approximate figure for your safety cash. Whether you keep this cash as savings or available as an overdraft, it is up to you. The concept will not be the be-all and end-all in times of need but it is important to consider its value in tiding your business over when cash is short.

Ultimately, it is important to not panic when you are short on cash and be systematic when deciding your next move. Move quickly and be honest, particularly with your financier. Once you are in the clear, think about reviewing what went wrong, so you can sidestep similar situations in the future.

Avoid cash flow mistakes by reading Critical errors in managing business cash flow >> 

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