The US dominates the global startup landscape, with countless new businesses being launched every year. According to statistics, the country scores 198.08 on a scoring scale, having more than four times the points as the second-ranked UK. Although the numbers are inspiring for American entrepreneurs, the stiff competition makes the journey challenging for them.
Competition and market unpredictability aren’t the only challenges that may come your way as an entrepreneur. A cash crisis is one of the most serious concerns, with surveys showing that a lack of financing was the cause of 47% of startup failures in 2022. New businesses are inherently short of cash, and a crisis can kill them sooner than later.
Business leaders recommend staying a step ahead of such emergencies with a strategic plan. Here are some actionable strategies to survive a cash-flow crisis:
Speed Up Your Receivables
A startup may face a cash crisis for many reasons, with late payments being the most common one. According to a report, 87% of businesses state that they struggle with delays in payments. Being new in the industry may compound the problem because you may not get credit from your suppliers and vendors. Things can easily go downhill when delays are persistent.
The best solution is to find ways to speed up your receivables because the quicker money flows in, the sooner you can overcome a crisis. Here are some ways to accelerate receivables for your startup:
- Seek a deposit or partial payment upfront from the new customers
- Send invoices early, preferably immediately after the delivery of products or services
- Generate invoices in shorter cycles (weekly or every two weeks instead of monthly)
- Pursue your past due accounts receivable
- Ease the payment process with bank transfers, credit cards, and mobile payments
Negotiate Your Payments
Negotiation skills can be handy for startup owners when a cash crisis is around the corner. You can reduce the cash flowing out of your company by delaying payments or seeking discounts. With this strategy, you can limit the strain on your startup’s working capital during the cash emergency.
Start by negotiating payments and timelines with your vendors and suppliers. Be honest and assure them about your intention to repay as soon as the crisis is over. Odds are that you may find a team of loyal vendors who are ready to be flexible during a tight situation. Consider asking your utility providers for some leeway or a reduced obligation.
Seek a Viable Borrowing Option
Besides increasing receivables and reducing payments, infusing fresh cash into your business is the best way to sustain amid a crisis. A quick business loan can be a lifesaver for startups, but procuring it easily boils down to the provider. Recent data shows that alternative lenders had the highest approval rates at 28% for small businesses in 2023. Conversely, the approval rate was the lowest for big banks.
According to Unsecured Funding Source, startups seeking cash assistance in a crisis should look for unsecured loans with flexible terms and competitive interest rates. A simple application process and quick approval are other factors making a borrowing option ideal for dealing with a cash flow emergency.
Unnecessary expenses can land a business in trouble when it comes to cash flow. They are damaging for young startups and established businesses alike. As a rule, you must scrutinize every dollar leaving your bank account. Increase the level of vigilance when a cash flow crisis is impending.
At such times, you need to prioritize your company’s expenses and stick with only the essential ones. Team lunches and subscriptions can wait until things normalize and money starts flowing again. Until then, limit your spending to things that keep your business operational and generate revenue.
Find Alternative Income Streams
Side hustles are not only for individuals, as businesses can adopt an alternative income stream when the money runs tight. You can consider selling redundant equipment, leasing extra space in your office, or outsourcing services to enhance your cash flow.
Selling stuff is a temporary fix, but it can provide a lease of life to your startup when it is needed the most. With other income streams, you can adopt them for the long haul to make your business more profitable.
Survival is one of the biggest challenges startups encounter during the early stages. A cash crisis can be a killer for a business already struggling to stay afloat. Unfortunately, cash bottlenecks are more common than you imagine. You can follow these practical strategies to sustain during periods of low cash flow.