Seasonality in orders or in production, delay of payments from a major customer, unexpected expenses for equipment repair. These are just a few common reasons why particularly small businesses can run into significant financial difficulties. Here are some tips on how to deal with such situation. 

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Review your expenses 

Excess expenses together with insufficient financial reserves are one of the most common causes of company liquidation. This does not mean that every company waste money. In most cases, there are always some expenses that can be saved on without affecting employees. So, go through all the items of expenditure and assign importance to them. For example, if the total expenses make 500 thousand per month, the expenses for materials in the amount of 130 thousand represent 26 %, salary in the amount of 240 thousand 48 %, rent in the amount of 30 thousand 6 %, and small purchases in total account for the remaining 20 %. 

There may be a number of seemingly smaller expenses, but if they represent a significant share in the total expenses, it is appropriate to revise them in case of insufficient financial situation of the company. A temporary reduction in costs will not only loosen the straitjacket of your financial crisis, it will also restore profitability. 

Focus on income 

There are companies that save. And then there are companies that make money. However, it is not always possible to permanently increase sales and sell only profitable products or sell at higher prices. But your strategy may be to narrow the product range with a focus on profitable and most frequently requested products and their innovation. 

TIP: If you are a manufacturing company and you also have quality research and development the results of which you use for your own new or innovated manufacturing technologies and products, you can register some of these research achievements with the Industrial Property Office in the form of pilot plant, proven technology or functional sample and reflect this fact in the offered prices. 

You can also help a tight budget if you can reduce discounts, at least for a short time, or ensure and maintain the quality of products to avoid complaints and therefore additional costs. If you have a sufficient market position, you can persuade customers to pay for your products, goods or services earlier. You can also support cash payments by offering a certain benefit to customers. 

Sell your property 

There is a period when you cannot afford to keep unnecessary property. Whether it’s unused machinery or equipment or excess inventory, sell it if possible. Unnecessary assets tie up money without being of any value to the company. Does non-turnover inventory bring any interest? What do you think? On the contrary, the value of money decreases over time due to inflation. Money should flow, not idle in unused property. 

However, if you do need manufacturing equipment or cars for your business, you can still consider income from their sale. The solution is leaseback. A leasing company will offer you immediate cash for the purchase of your property, while you continue to use the property for a fee. This makes it easier to overcome difficult financial periods. Similarly, you can sell your receivables to factoring or forfaiting companies. However, there are other tools to improve your cash flow. We will talk about them in the next article. 

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Article author: Pavlina Vancurova, Ph.D. from  Padia

Ing. Pavlína Vančurová, Ph.D.

In cooperation with Pavlina Vancurova, Ph.D., specialist in business economics from consulting firm PADIA, we have prepared the Caflou cash flow academy for you, the aim of which is to help you expand your knowledge in the field of cash flow management in small and medium-sized companies.

In her practice, Pavlina provides economic advice in the area of financial management and setting up controlling in companies of various fields and sizes. In 2011, she co-founded the consulting company PADIA, where she works as a trainer and interim financial director for a number of clients. She also draws on her experience as the executive director of an international consulting firm. She worked as a university teacher and is the author of a number of professional publications.