What to do if you find yourself in a tight cash position

By Mark C. Zweig Winter of 2011 in the A/E/P and environmental consulting business— it’s been a long one for many of us! And along with record cold temperatures and snowfalls in many places in the country (including right here in Fayetteville, Arkansas, where we have about two feet on the ground as I write this), many firms are also facing a cash crisis. This isn’t something that developed overnight. Slowdowns in work, losses, staff reductions, slow paying clients, bankrupt clients, departing shareholders, and more, have contributed to the situation that many firms are seeing. And there is not enough cash and credit to pay bills the way they would like. So, if this scenario sounds familiar to you, I want you to consider the following points: 1) Face the problem. It is a problem and it won’t go away on its own. Don’t live in denial of it. Don’t be ashamed. But do take action. 2) Realize that you cannot live like you always did. You are going to have to make some changes. You may pride yourself in paying all your suppliers in 15 days. That may no longer be possible. The alternative of going out of business and paying them nothing is much worse than being slow to pay. This is a hard pill for many to swallow— myself included— but I don’t think it is a rationalization. It is in your best interests and those of your suppliers and subconsultants for your firm to survive. 3) Get your cash flow forecasting working. The last thing you want is NO warning that you have run out of money. Just having a week or two (or ideally, more) may be all you need to stay out of trouble. The warning is critical and your cash flow forecast should provide you with it. 4) Slow down payments. Paying a bill 30 days late is better than never paying it at all. It is not something any of us want to admit but this is the reality of the situation. “Yes,” you wish you weren’t in this position. “Yes,” you plan on paying what you owe. But “No,” it won’t be on time. Most people will understand if you level with them. If you lie about when you will be paying them, it won’t be good. If you make a promise, keep it. 5) Collect the easy-to-collect money early. Of course you want to pull out all the stops on old money because the longer you wait to collect it the harder it is to do so. But don’t ignore the recent bills sent out to good clients, either. Call them. Ask when you will be paid. Ask them to push you up earlier in the payment cycle if it seems possible. Don’t assume that a good-paying 45-day client won’t pay you in 20 if you ask. 6) Get all the credit you can. Besides the bank credit lines there are other sources. Credit cards, for example, may allow you to get by if you really need them. They do have high rates, but would you rather pay 1.5% per month on money borrowed if it keeps you in business or go completely out of business? I realize not all of our readers are in this kind of shape of even having cash flow problems at all, but many of you are. And if you aren’t now, odds are you will be at some point in the future. So, tuck this article away where you can find it if and when that time occurs! Want to hear more from Mark Zweig - and each week? ... Read more.