How to Survive a Cash Crunch

Nine smart strategies for outlasting tough times.


There’s a reason why “cash is king” is a mantra for so many business owners. As advice goes, it’s right up there with “always wear a life vest” when you’re on the water. Healthy cash flow can make the difference between staying afloat during tough times—or sinking under a wave of setbacks.

An economic downtown, lost customers, a lack of investors or even a natural disaster can all bring a healthy cash flow
to a mere dribble. What should you do if you find yourself in a cash crunch?

Think ‘Triage’

Prioritize the use of available cash. Put your employees first by giving payroll top priority, along with tax withholdings and employee benefits. These types of costs take precedence when cash gets tight.

Then, take a look at your upcoming payments and bills for the next 90 days—or less, as your situation dictates. Are there any commitments that you could negotiate to pay at a later date? Would your vendors accept partial payment?

Slash any expenses as much as you can. Also, keep an eye open for potential fraud that could be causing a loss of cash.

Speed Up Your Billing Cycle

Think about invoicing more frequently. Dial it up from once a month to twice a month. Long term, this may give you more cash flow.

What if your business is cyclical? Could you adjust your billing cycle to support the seasonality of your business? If you have a delay in billing, is that due to customer demands—or your own internal procedures that developed over time?

Manage Your Receivables

Don’t count your accounts as revenues until your customers pay you. If it makes sense for your company, think about providing incentives for customers who pay up front or require customers to put a deposit down for your services or products.

Be sure to let the employees in charge of collections understand your goals for collecting old receivables. Give them authority to offer incentives to customers who are willing to pay early.

Be Ruthless About Overhead Costs

If you are having a cash shortage, be honest with yourself about how much overhead your business can handle. Make tough decisions quickly about cutting overhead. Don’t let the problem drag on for months on end—or it could end up sinking you.

Consider Selling Nonessential Assets

The short-term benefit of selling an asset is quick cash. But there are long-term questions you should consider.

For example, selling a piece of equipment to generate short-term cash may not be worth it, especially if one day you’ll have to buy back the asset and potentially lose money in the process.

Use Your Credit Cards Strategically

Make sure you understand outstanding balances and credit limits for cash advances versus purchases. Consider charging expenses to cards with available merchandise credit, but no available cash advance credit. The idea is to maximize your available cash advances when you need them.

Take a Preemptive Strike

Don’t wait for an emergency to get help from your CPA. By regularly sitting down with your accountant and reviewing your cash flow statements, you can identify (and avoid) potential problems.

Often, businesses that are having cash flow issues hesitate to call their CPA because they want to control fees. However, this is one key adviser who is most likely to help keep you alive to fight another day.

Talk to Your Banker

Your bank wants to see your business thrive. Talk to your lender to find out if they have any short-term financial solutions to help you stay afloat.

Don’t Panic

Getting a full picture of your current situation will help ease your anxiety. And having a plan to get your business back on track will allow you to focus on your customer and your future.