Coping With a Cash Crunch
by Patricia M. Johnson and Richard F. Outcalt 
Cash is the lifeblood of every retail business.
Without cash for inventory, payroll and other expenses, an emergency is imminent. Even a profitable business can experience not having enough cash at the wrong moment. One moment cash is flowing, the next moment it is only dripping. Drip. Drip.
It’s an emergency when the cash flow stops and paralyzes your store. But if you still believe in the long-term viability of your business and are willing to work toward its success, put these six steps into action immediately. They are the foundation for avoiding future cash crunches.
Take Charge! What to Do in a Survival Setting
Step #1: Personally monitor all cash disbursements
In a survival situation, cash management should not be delegated. Take personal responsibility for all decisions affecting cash disbursements. Stay informed on a minute-to-minute basis. Dispense cash sparingly.
Step #2: Face the situation squarely.
The fact that you’re reading this article and are prepared to take charge shows that you are willing to level with yourself about your concern for your store’s situation. Now take it a step further—look at the cold, hard facts.
List all your liabilities.
- How much do you owe lenders, suppliers, and others? When must they be paid? Make a list of all pending bills. Date them.
- Decide which bills must be paid, such as payroll, utilities, and vendor bills for current stock.
- Check all billings for finance charges and make a judgment on which ones will likely occur, and at what price.
List all of your sources of cash.
Look for any areas that might produce immediate cash: sales, receivables, financing? Will these sources of cash eventually allow you to meet your debts and continue to operate your business?
After a careful and honest scrutiny of the facts, if you believe your store can survive, you are ready for the next step.
Step #3: Get on the phone to all creditors
Don’t hide. Call your biggest creditors. Talk with them. Remember, they want you to be in business. Look at some of your bigger cash outlays.
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Landlords: You may be able to delay payment by a week or two, whatever it takes to get through the crunch.
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Vendors: Find out how flexible they are. Call them before they call you.
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Lenders: Explain the situation to your banker, and find out what options exist.
Step #4: List all saleable assets
Now is the time to liquidate superfluous inventory, fixtures, etc.
Look at everything—even that old display shelf in the back room; another retailer down the street might be able to use it. Use eBay or Craig's List; turn it into cash!
In storage you may have some old merchandise gathering dust.
Brush it off and put it on sale. Get the word out about your sale and be sure to put the old products along side an appealing display of fresh inventory.
Customers drawn to the store for the sale may choose to buy the new merchandise.
If they see an attractive display of new arrivals, people won’t misinterpret your sale as a “going out of business” sale.
Step #5: Prepare a cash flow budget
This is your most important tool. Combined with the steps above, the cash flow budget will help steer you out of trouble.
We suggest that this first budget cover the next six weeks. This will help identify any shortfalls and possible sources of cash to cover them. This six-week plan is an interim measure that will meet your immediate needs.
To get you started, check out The ROI's free "Cash Flow Gadget." It is set up for a four month time span; but you can use it for the next 4 weeks if you wish. The calculations work the same way.
A longer cash flow budget should be shown to the bank along with your pro forma (projected) income statement and pro forma balance sheet.
This is where The ROI's 3-in-1 INTEGRATED Cash Flow Calculator can be your powerful ally.
Step #6: Cut and slash
This is the hardest step and requires that you remain both objective and honest at the same time.
Analyze all the aspects of your business allowing you to access cash. Look at how you operate your business and find areas that can be cut.
Measure your actions by what will allow you to survive the immediate situation against your ongoing needs once through the current crunch.
©Copyright, The Retail Owners Institute® and Outcalt & Johnson: Retail Strategists, LLC.
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