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When Your Business is Out of Cash, Take These Steps to Survive and Thrive

by Patricia M. Johnson and Richard F. Outcalt  

Use Honesty to Build Trust

You’ve leveled with yourself about your store’s situation. Now level with the other people affected by the crisis, namely your vendors, your lenders and the employees who are or will be involved.

Your Suppliers

If you have had difficulty paying invoices on time, chances are you have lost credibility with your suppliers. Regaining the ground you’ve lost is vitally important.  It’s a slow process, but it can be done.

Keep all appointments; return all phone calls. Keep the promises you make. If you aren’t able to pay an invoice on time, call the supplier and work out a payment schedule. Even a token payment can work miracles in terms of a vendor’s willingness to cooperate with you. A check, however small, shows your faith in your store. It is concrete proof that you intend to honor your debt.

Your Lenders

Have you been late with loan payments? Ducking whenever you catch sight of your banker is not going to alleviate the problem. Schedule some time with your banker to explain your situation. Take your newly developed pro forma income statement, your cash flow forecast, and your pro forma balance sheet. When your banker sees you are planning realistically, he or she will be much more willing to work with you and even to restructure your financing, if necessary.

Your Employees

If you are occasionally a day late with payroll or have been forced to cut back employee hours, you owe your staff an explanation also. While it’s probably not wise to blurt every detail of the situation to your employees, they deserve to be informed.  Chances are they already have sensed the difficulties the business is experiencing. Trying to conceal facts will only erode your staff’s morale. If you enlist their support, you may be amazed at the loyalty they show.

When telling your employees about your store’s short-term difficulties, make sure you also convey your belief in its long-term viability. Most employees will be able to weather a period of uncertainty if they know that meeting payroll is your first priority.


Control the Cash

In order to properly control your cash, it is imperative that you develop a more detailed financial plan

Work out a monthly pro forma income statement for the next twelve months minimum, and preferably for two years. Likewise, develop a monthly cash flow forecast for the same period.

Provide for adequate cash in your planning. In the above scenario you would want to include liquidation of any superfluous inventory or fixtures, etc., their estimated cash value, and date of sale. 


Remember, cash is the lifeblood of your store, and a cash flow forecast is its backbone.

Don’t predict unattainable results. Forecast only those profits you have every expectation of exceeding.  (My! How impressed people are when actual results exceed your projections!)

Develop a pro forma balance sheet for your business showing the next fiscal year end.

If you’ve done your planning properly your projected balance sheet should show continuous strengthening of your turned-around business. Lenders are much more willing to cooperate when they are convinced the owner has a viable plan of action that:

  • takes advantage of strengths
  • neutralizes weaknesses
  • is continually updated and monitored 


Get MORE about controlling cash flow


Every operation struggling for survival is losing money in some of its components. As you developed your forecasts, you probably noticed some places where cash was bleeding out of your business without an adequate return. Plan to stop the bleeding; that is—cut out the losers.

Analyze your margins.  

Analyze your sales figures for dead time. Instead of being open twelve hours a day, seven days a week, perhaps just six days a week for nine hours a day would be better. 

If you’re currently operating several stores, compare their profitability. Perhaps one or more of them should be closed. (As you contemplate that toughest of all decisions, try very hard to separate your ego, pride, and other emotions. Survival may be at stake!)


Look At Your Store With New Eyes

When you are experiencing a cash crunch, something is causing the damaged condition. But often, when you live with a business day in and day out, it’s difficult to recognize that problem.

Actively solicit input from the best minds you know

Naturally, time is of the essence. “What would you do if you were running this business?” Ask your spouse and relatives this question; ask your banker and other advisors; ask the most loyal employees. Ask sincerely, and you will get equally candid responses.

In every business, there are unlisted assets such as an outstanding salesperson, the location of a store, a list of loyal customers, and so on. Blow the dust off them, shine them up, and use them in your new concept. 

Utilize every asset - tangible and intangible - you can find

A good place to discover underutilized assets is through brainstorming sessions with your staff. “What do we have going for us that we take for granted or is not being used to its full advantage?” Your employees will like contributing, and the rapport you develop will enhance your teamwork approach.

Attempt to see your business through your customers’ eyes

What are they telling you about your store through their actions? Even though you may have to delay showing a profit, take care of neglected repairs. Your turned-around business should not look like a battlefield. Spread some paint, add some plants and repair equipment. Many stores are so intent on getting positive numbers on the bottom line that they, in effect, precipitate another decline.


Summing Up

Succeeding in the retail industry has always been a challenge. If you’ve made it this far, congratulate yourself. 

Then roll up your sleeves and follow through with some or all of these suggestions. Don’t stop taking the prescribed medicine the instant your cash crunch eases. Follow through!


©Copyright, The Retail Owners Institute® and Outcalt & Johnson: Retail Strategists, LLC. 



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