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Contributed to EO by Brooke Lively, an EO Fort Worth member who is founder and president of Cathedral Capital, which provides strategic financial advice to drive profit. By creating customized teams of financial professionals to analyze data trends and guide entrepreneurs through their numbers, CathCap serves as support to predictably scale and grow businesses.
When is the best time to plant a tree? Ten years ago. And when is the next best time? Today.
Confucious
I agree with this age-old wisdom, which also applies to cash crunches. The best time to avoid a cash crunch is well before you find yourself in one. But how do you know one is coming? Most small companies just check their bank balance and figure out they can’t make payroll. But there isn’t a lot you can do about it at that point.
It’s a best practice to have a Cash Flow Forecast that tells you how much money you are projected to have at the end of each week, and which extends to encompass the next six to eight weeks. That way, you can make plans and avoid a cash crunch that may be looming.
A few years ago, I was going over a Cash Flow Forecast with a client in Oregon named Dan. We looked out seven weeks and saw a big red negative number. Dan (understandably!) started to panic a little, but once he calmed down, we systematically went through all of his options.
Here are seven questions to ask yourself when you’re facing a cash crunch:
1. Can we use our line of credit (LOC) and transfer the needed funds?
Unfortunately, Dan didn’t have a LOC, so that option was out.
2. Are there any unnecessary expenses that we can cut that will resolve the problem?
Dan and I looked into this during previous cash crunches, and he was running pretty lean. There wasn’t anything he could cut that would solve this particular problem.
3. Can we move a big bill out a week and solve the problem?
Some big bills can be moved. F… Read More
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