Before you jump to solve the problem the easy way with more debt- borrowing only postpones the problem, look at the headline-grabbing story of “Enron”- loads of debt until the pile became too heavy to survive. And you know what happened. You need cash, but not cash from debt-you need cash from profits. Focus on the fact that saving and earning cash is your most important challenge.

Forecast Your Cash Needs-Monthly

From the worry and frustration you may be in a state of denial ­ hating to look at how bad your situation is. But you must. Start with forecasting your cash requirements and cash availability. Here is a simple, but effective, method that I have used. It works as a temporary measure, gaining you time to find solutions to your problems.

Assume, it is the first part of the month and your checking account balance is low as usual, and you are facing your customary cash demands. Before doing anything else, prepare a list of the overhead expenses you must meet; that is, your wages, rent, utility bills, installment debt or any mandatory monthly payments. These obligations are your first priority; obligations you must pay to stay in business. Next, prepare a list of bills from your suppliers and vendors for such items as inventory and supplies. This list represents your second priority obligations- which can be flexible- unlike your first list.

After you have completed the two lists, prepare an estimate of the amount of cash you can expect from your accounts receivable collections, and cash sales if any, during the coming month. If you have been in business for a while, review the last few months cash receipts as a guide to your forecast. Keep it realistic, no wishful thinking. Good cash management demands realistic expectations.

If your cash receipts forecast was accurate, and after paying your first priority expenses, such as wages, taxes, etc., you do not have enough cash left to pay your second priority bills, such as your suppliers, you have a crisis.

Nevertheless, you have options. Suppliers can be flexible creditors, as it is in their best interest not to push their customers into bankruptcy. Do not misunderstand me; you must pay your debts. However, most suppliers will work' with you, allowing some form of flexible payment schedule as a temporary solution. The most effective approach is to call each supplier, explaining that your present cash flow is slow, but that you will be sending as much you can. It is always advantageous to take the initiative. Don't wait until the collection calls start- your suppliers may not be as cooperative.

Collect Your Money

Slow paying or non-paying customers rob you of the use of your cash. It is never sufficient to insure a good cash flow by just sending invoices and statements. You must aggressively manage your receivables. Don't hesitate to phone your slow paying customers asking for your money. You may lose a customer, but so what, if you cannot get paid. Since, the older the bill, the less chance there is, you will ever see the money. Bank loan officers and other credit managers, are well aware of the problem of past due debt. They know that the older the debt, the less possibility of collecting it.

Tap your inventory for money

Your inventory can tie up your money in a hurry. When you send a supplier a check for inventory that is accumulating dust, you are using money that you need to pay expenses and your payroll.

If only a small portion of your catalog of product is responsible for most of your business; just how much do you stock? Your objective must be to maximize your turnover, focusing on your best selling items. However, if you are attempting to cultivate a loyal customer following, by always having what your customer wants, your inventory investment will be much larger- sacrificing turnover. Pay attention to what you are selling and who your customers are. Remember, the more you turn over your inventory the less cash you will tie up sitting on the shelf.

If you have been successful in curtailing your expenses, streamlining your operation, making arrangements with vendors, collecting your accounts receivable and stocking only what you can sell within 30 days, your cash balances should begin to increase.

Managing a company back to health is hard work. If your dream is still important to you- your efforts and sacrifice will be well rewarded. You can improve your cash balances by cutting back on expenses and spending, getting paid promptly by your customers and cutting down and turning your inventory into cash. Next month, we tackle the problem of increasing sales.

Step One: How to Save a Sinking Business | Step Three: Pump Up Your Sales Efforts