Keeping Cash Flowing in a Recession

by Herb Lawrence,
Center Director,
ASU Small Business and Technology Development Center
hlawrenc@astate.edu.

2009 is starting off as a tough year especially for small businesses as they deal with a recession, a credit crisis, and the fallout from the banking meltdowns. Add to the mix reduced consumer spending and it is spelling a real challenge as they try ride out the current economic downturn. No one knows exactly how long this recession will last; some economists expect it to go into late 2009 or even 2010. Cash flow management does not happen by accident, it takes careful planning and knowing all of your options. At the Arkansas State University Small Business and Technology Development Center some areas that we suggest clients consider include:

Talk to your banker NOW; discuss how they may be able to assist you with possible cash flow issues. If they can’t be there for you, consider alternative lenders.

Get monthly cash flow projections prepared now. Micro managing cash is critical to long term survival. Tighten your belt in ways that don’t show. Make internet calls instead of using phone carriers and e-mail documents instead of printing and mailing. Look at energy saving programs. But if you are already running out of cash then slash expenses as if your life depended on it. Reduce salaries temporarily, making sure you take the biggest cut. Get rid of every ounce of fat on your income statement, but keep muscle. Forgo raises and cash bonuses instead offer days off, early Fridays, flextime or other options.

Speed up collections from customers – Ask customers to pay in 10 days rather than 30 in return for a discount. If you can afford it consider offering 5% discount for payment within 5 days instead of the usual 2/10 net 30. Speed up cash inflow by asking for payment by credit card.

Renegotiate vendor relationships - Shop with other suppliers. See if your current vendors will provide a discount for early payment or by credit card. Your vendors are in this recession as well and may prefer some money to no money for their cash flow. If you are already in trouble, tell your suppliers and work out extended payments over a six to nine month period.

Liquidate inventory – Call it a “The Economy Stinks Sale” excess inventory that is not being sold does not bring in cash.

Sell off unneeded assets - look at any equipment, furniture or fixtures or other fixed assets that your business has that is not being used and sell those off if possible, even look at your personal assets.

How long the current recession will last is anybody’s guess, but careful cash flow planning to retain liquidity will be a must for most small businesses. The ASU SBTDC provides free consulting assistance to small businesses in Northeast and North-Central Arkansas. For more information about how the ASU SBTDC can help your business maintain liquidity call Herb Lawrence, Center Director or Laura Miller, Business Consultant at (870) 972-3517 or e-mail hlawrenc@astate.edu.