You’ve always taken pride in paying your company’s bills on time. Your employees have never worried about receiving their payroll checks on Friday. The bank has always been eager to loan you more money. Things are different now, however. Cash is tight, and everybody’s anxious: suppliers, staff, the bank…and you. How should you respond?
Take action early. Don’t waste time! Take action as soon as your “gut” tells you the business might be suffering. Identify the root causes of the cash shortages, then quickly formulate and implement corrective steps. Delays will erode critical goodwill with vendors, employees, and bankers…and postponement of sound management action can result in complete business failure.
Seek competent legal help. An experienced bankruptcy attorney should be consulted before you have extensive discussions with nervous creditors. The lawyer can help you formulate proper responses to increasing pressures from suppliers and lenders who will demand precious cash and collateral needed by your business.
Communicate with creditors and employees. Decide which creditors and staff are critical to your company’s future success, and provide them with periodic status reports about the troubled situation. By keeping these interested parties informed of the steps being taken to benefit their interests, you’re more likely to obtain cooperation during the crisis period. A word of caution: Don’t make promises you can’t keep!
Stop the cash bleeding. Insufficient cash flow can easily cause a company to fail. To save a financially-troubled business, quick steps must be taken to preserve cash. Develop and use a 13-week and 12-month cash forecast tool (using Microsoft Excel) to plan and control cash receipts and disbursements. Maximize cash by following these suggestions:
- Develop detailed weekly/monthly cash forecasts
- Reduce costs
- Defer A/P
- Accelerate A/R collections
- Liquidate excess inventories
- Sell unneeded assets
- Discontinue unprofitable operations
- Obtain new debt or equity funding
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