Have a sinking feeling in your gut that your numbers just aren’t adding up? Starting to feel the weight of the world crushing in from all sides as creditors call with increasingly urgent demands for money you’re pretty sure you just don’t have? Wishing you had thought ahead more considering now you seem to be in debt to a lot of people quite out of nowhere? You may have a Cash Flow Problem. As a CFO Consultant, I know a few things about getting through this stressful potential nightmare, but first I’d like to rewind a bit, so that in the future, perhaps you can avoid said nightmare altogether. Having a 13 week or 12 month Rolling Cash Flow Forecast is the best way to avoid being blindsided by a Cash Flow Problem. The 12 month Rolling Cash Flow Forecast is the one that comes most highly recommended by me, because it offers a longer range view and more “what if” analysis. This gives the business owner both the ability to see cash flow problems coming and the time needed to avert those problems!
Now that I’ve given you a little good advice too late, let’s get back to your current problem. You may even be thinking “I had a 12 month Rolling Cash Flow Forecast, yet here I am, still in trouble.” Sometimes even with a cash flow forecast in place, unforeseen troubles still arise. Sometimes the problem is predicted, but there was still nothing that could be done to stop it from occurring. Sometimes the problem is foreseen but the business owner decides it’s a calculated risk to let it happen because of what else they gain from it, and it doesn’t work out. Whatever happened, the end result is that you now have a Cash Flow Problem, and you need to be quick about resolving it.
In order to get in control of a Cash Flow Problem, being in control of each vendor situation is imperative. That means being as proactive as possible. Communicate with your creditors. A mistake most business owners make is remaining silent and trying to hide from their creditors. Of course hiding never works, creditors will simply continue to barrage you until you pay them. At this point, while you are officially in the middle of a Cash Flow Problem, creating a 13 week Rolling Cash Flow Forecast would be more advantageous to you than a 12 month one. It allows you to look ahead for the short term, and determine how much free cash flow is available to pay bills, therefore helping you out of your problem. After determining how much money is available for paying bills, decide which things are the most important to pay off immediately (on the top of that list should be payroll, payroll taxes, sales taxes and any other fiduciary taxes). Then, payment plans need to be created for creditors so that everyone at least gets something when they can’t get everything. The big thing to remember in all of this is DO NOT BE SILENT. Just like you need to communicate with your creditors you need to communicate with your vendors. Once you’ve worked out how much money you have and the order in which you are going to pay things off, you need to be proactive and reach out to your vendors. The sooner you do this, the better, because early action is how you remain in control. You can dictate the terms to your vendors. You can let them know how much and at what time intervals you are going to pay them.
Typically, being so forthcoming about your situation and working it out in such an organized, efficient manner will earn you respect and people will be willing to go along with your plans. Of course, not everyone is going to accept your terms. Sometimes people will meet you half way, sometimes people will completely disregard your terms and continue to demand full payment immediately. You should expect these things to happen. It’s the reason you need to reserve some of your free cash flow for creditors who are adverse to your payment plans. You can’t just allocate your entire free cash flow to your payments up front, because cash flow problems need to be handled on a case to case basis.
If you take anything away from all this, it should be that if you aren’t proactive, you relinquish control of the situation to everyone coming after you for money, and they obviously don’t have you or your company’s best interests at heart. A Part Time CFO with experience in handling these situations could also be greatly beneficial in helping you through this stressful process. Working out a Cash Flow Problem is never easy, but it doesn’t have to cause the business to death spiral, and I’ve sadly seen just that occur all because the business owner was not proactive. Honestly, even though things probably won’t work out perfectly, the most important thing you can do to help yourself when faced with a cash flow problem is being proactive. Be up front about your situation, find out what you do have, come up with a plan, reach out to the people you owe and try to work it out with them. Good luck!