Even successful businesses have times when they lack the cash to pay short-term commitments. The key to mitigating any risk is identifying the risk and then creating processes and controls to protect yourself.
The risk of cash shortfalls is no different. Setting in place cash flow projection processes that provides you a clear and accurate view of the potential cash flow problem as early as possible.
Although unfortunate, the best time to enter into a lending agreement is when you already have access to funds.
Banks are hesitant to lend to companies who experience cash flow shortages due to a perceived or real lack of planning.
The terms, conditions, and interest rates for companies in need of lending are less favorable and more expensive.
Lines of credit and/or asset-based lending agreements are great options for businesses that are planning for times of cash needs based on expected growth or seasonality of business.
By entering into lending agreements in advance of need, it is much easier to find a lending partner.
When traditional borrowing is not a viable option, consider your suppliers as an option to extend your terms. As suppliers have a vested interest in your continued success, they likely know your business and may be flexible to ensure continued revenue.
This option is most readily available when you are a good customer, there are open lines of communication and you have a strong working relationship.
Financial service businesses that offer factoring can pay you today for receivables that may not be paid for weeks or months.
Factoring can be an expensive option based on the types of receivables, industry, and stability of your business along with other considerations.
You’ll receive as much as 15 percent to cover the factoring agent’s fees, but you’ll eliminate the collection burden while being able to avoid borrowing to fund current operations.
Lastly, your focus of getting through cash shortages should be on getting through the crisis. Payroll is the priority as unpaid employees become former employees, crucial suppliers are next and the rest you should consider negotiating delayed payments.
ACT and Engage
As we have consulted with clients and business owners during 2020, the steps have been the same.
We help clients assess and engage their specific circumstances and then advise clients to focus on the specific controllable areas that impact the bottom line.
One of the primary areas of focus for both us as an advisor and the client is gaining a clear view through the cash flow management process.
Our B&V CFO Advisory Services team works with business owners to ensure a rock solid accounting foundation, actionable cash flow management services, and strategic Controller and CFO advisory support to mitigate brand damage risk.
Our accounting, regulatory and financial expertise provides business owners comfort that their financial health is well handled while the owner focuses on driving the company forward.
Our Part of Your Solution
All businesses have a need for cash flow analysis and projections.
Our B&V CFO Advisory solution provides experienced Controllers and support team members with experience in cash flow analysis and establishing best practices.
Whether supporting your accounting team or serving as your outsourced accounting and finance function, we assess the issues, choose the best solution option available, transition into solving the issue and engage in the process.
Our experience has shown us that our CFO Advisory services generally represent 60 to 75% of the cost of a fuller sourced, on-site accounting controller’s salary, benefits, and bonus.
We engage our clients with a highly experienced team at a fraction of the cost of an in-sourced team.
Our dedicated CFO / Controller, Accounting Manager and support staff is always there to answer questions, provide a structured control environment to protect your assets, and focus on helping you understand and mitigate your financial and operational risk.
If you are a service-based business:
- In need of financial expertise and guidance,
- Desiring a cost effective alternative to a full time Controller / CFO
Our B&V CFO solution may be the best option. Our aim is to take care of your strategic finance and accounting needs so that you can take care of your business.
Interested in our CFO / Controller Advisory Services? Call us at 713.667.9147 and ask for Kevin Stewart or Jana Kelly to schedule a free 60-minute consultation.
About the Author
Kevin Stewart is an accounting executive within professional services, public and private growth companies.
He has 20 years of experience turning around and building accounting and finance teams to fix the sins of the past, stabilize the now and create organizations to support growth.
His deep finance, accounting and compliance expertise helps business owners focus on what they do best – run and grow the business.
As your Chief Profit Officer (CPO), he will help improve your profits by focusing and advising on the controllable financial aspects of your business.
Steps to Surviving a Cash Flow Shortage (Part 5)