For small businesses, tightening the belt by saving money isn’t just a matter of keeping expenses low, but actual survival. Holding on to cash means you have the ability to meet your obligations and fuel business growth.
Preserving cash means everything for your business. It is the gasoline that fuels your company’s engine. Without adequate cash, your business will suffocate and you may find yourself scrounging through the couch for loose bills. Cash leaked through poor preservation practices is also one of the reasons why most small businesses fail.
Your business should hold enough cash for next week, next quarter and, if it’s on shaky ground, the entire year – for purchasing new technologies, roping in suppliers or even bringing on new recruits when you need to.
Here are four ways to preserve cash for your business and keep things running:
Though renegotiating a lease with the landlord to push for a lower rate is no easy feat, if the tenants in your community are thin on ground, and your lease will be soon up for renewal, you might just end up getting a better deal, even if you signed up for a long-term lease initially.
A landlord who knows your business might face problems without a lower rate may be willing to accommodate with rent reduction. The landlord might ask for a personal guarantee from the owner in exchange of rent reduction, even if it’s an LLC company or a corporation.
Most small businesses never actually buy equipment…they apply for equipment loans and lease what they need. This allows for preservation of cash; cash in hand gives you the flexibility and security to run daily operations and provides a ‘cushion’ for unexpected emergencies and expenses. Leasing equipment also offers tax benefits and savings that you may not be able to reap through outright purchase.
But before leasing, take a look at everything that’s already there, especially items you’re still bearing costs for. Sell everything you do not require, cancel leases on non-essentials, or return such equipment to the vendor. Then, when the time comes to acquire new equipment, go with an option that does not require any down-payment and provides you quick turnaround times.
Define realistic expectations for business sales every time you set aside a budget to purchase new inventory. It does not make sense to keep high stock levels if the vendors drop ship orders quickly but the price outlook remains stable. Preserving cash provides flexibility in case the wants of the consumers change.
Also, if most of your products are manufactured in house, avoid manufacturing 100 varieties when 10 are enough to get going. Keep office supplies on the low as well; be realistic about how much you need to carry out operations smoothly, because you can always purchase more if the need arises.
Your real estate could be your most valuable asset when your business wants to avoid cash leakage, so make sure you’re putting it to good use. You can rent out unused space when downsizing, for example.
Or you could move your business to a different location if you do not require all the space and rent out the entire property. And, do not neglect competitors as subletters – they might even pay a higher price to operate on your property.