I know this very well, as a building company for 8 years I am uniquely qualified and experienced to tell you about this, and if you’ve ever run a building company you probably know this story unless your business is super organised or you’ve been pretty lucky, or possibly both.
Cash is like blood pumping through the business and so when you start to run out of cash it feels like the business is slowly dying. Like any accident it’s normally a combination of accumulated risk - such as poor accounting practices - and a number of small things going wrong; slow payments, bad weather, underperforming staff.
When this is coupled with some sort of an unexpected event, typically a default by a client, to put your business at risk it comes like a wave breaking around you and it’s debilitating and insidious, poor cash flow is like a cancer eating away at your business distracting you from doing your job properly putting it at risk.
Most advice I’ve read for beating a cash flow crunch involves cutting costs, improving accounting practices or selling assets that your business doesn’t need (like there’s a lot of those right?).
All these things that are great but they won’t help you in that moment where things have suddenly become tight and it feels like you’re sinking in quicksand. You don’t have time to find a better accountant, you’re not about to start re-organising your systems, you’re trapped and you need to act fast or the business you’ve worked hard to build over the years will be gone.
Here are some tips on what to do next that I have learned from practical experience. They won’t prevent a cash crunch but they might just give you enough breathing space to work it out or absorb the blow, survive and build a stronger business.
1. Be Upfront with Your Staff and Creditors
Honesty and transparency are key when dealing with an acute cash crunch. Inform your creditors about your financial situation and let them know you're working on a plan to address the issue. They may be more understanding and open to negotiating payment terms if you communicate proactively and transparently.
2. Answer the Phone - Talk to People
When you’re in a cash crunch the last thing you want to do is answer the phone with another creditor chasing payment but avoiding phone calls or ignoring messages from creditors or clients will only make things work because they will start to panic. Be responsive and maintain open lines of communication with all parties involved. This approach will demonstrate your commitment to resolving the issue and help foster trust and understanding.
3. Ask for Help
Don't be afraid to ask for help from financial advisors, business mentors, former clients or industry peers. They can provide valuable guidance, insights, and support during challenging times. Remember, asking for help is a sign of strength, not weakness. A problem shared is a problem halved.
4. Reach out for support
Talk to friends and family about it. Don’t be afraid to say to people: “i’m doing it tough” - everyone does it tough at some point, everyone knows the situation you’re in. You need to look after your mental health and talking to people you trust is definitely worthwhile. It helps….a lot. A beer with a trusted mate who reminds you that actually you’re doing ok makes a world of difference.
5. If you’re distressed reach out for support
You might think - WTF - We’re up to number 5 and we haven’t got to any practical things yet, how does all this help cash flow? Fair question but the solution starts with getting yourself in a positive mind frame, thinking straight, communicating effectively and making good decisions. Without this you’re toast. Here are some resources you can access in Australia: Lifeline phone: 13 11 14 and Beyond Blue.
Ok here are the practical things
6. Bring Forward Claims
Accelerate the submission of claims to get paid sooner. You may think you’re locked into a schedule of stage payments which can sometimes be onerous but you can break these down, if you’re next payment is due at lockup but you’re only 70% there, just submit a claim for 70% of lockup, most of the time it will be paid.
7. Defer Payments
Negotiate with creditors and suppliers to defer payments or extend payment terms. Many creditors may be willing to work with you if you maintain open communication and demonstrate a genuine commitment to paying. Sometimes you find that you’re paying at 30 days while all the other creditors are paying at 60 or 90 anyway.
8. Ask to pay in Instalments
Request to make payments in smaller instalments instead of a lump sum over an extended period. This can help ease the immediate financial burden and allow you to manage your cash flow more effectively. 9 out of 10 suppliers will be fine with this.
9. Focus on Profitable Clients and Projects
Prioritise projects that bring in money sooner and have higher profit margins. Focusing on these projects can help generate cash flow quickly, allowing you to address the cash crunch more effectively. Additionally, identify clients who are more reliable and prompt with payments, and prioritise their projects over those with a history of payment delays.
In conclusion, to overcome a cash flow crunch, be proactive, transparent, and resourceful. Communicate openly with staff, creditors, and clients. Seek advice and support from trusted sources. Prioritise profitable clients and projects, accelerate claims, and negotiate payment terms. Remember, it's not the end of the world - it's an opportunity to learn, grow, and thrive.
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