While the media is bemoaning how the shutdown of the commercial paper market is affecting businesses (see The Economist’s “All you need is cash” piece), new businesses are feeling a different kind of pain. They haven’t been around long enough to obtain credit from commercial banks, so they are bootstrapping — operating literally hand-to-mouth (sales-to-expenses).
New businesses may not be directly concerned about the credit market. But an indirect effect is caused by larger, more established companies cutting back on spending and laying off employees, which does affect businesses operating on a shoestring. Demand is down significantly, and sales for these newbies isn’t keeping up with expenses. What is a new entrepreneur to do?
Managing cash flow now is a challenge. The forecasting approach you used even several months ago just doesn’t apply anymore.
- Rethink your cash flow projections; reduce revenue expectations by at least the amount of drop you’ve seen over the last few months.
- Contact your suppliers and see if you can negotiate partial payments for a time. They might be happy to receive something rather than nothing from you.
- Be cautious that you don’t trim expenses in areas that contribute to generating sales. Get creative about marketing, but don’t eliminate it.
- Stay in touch with your existing customers and let them know they are valued. Encourage repeat business.
- Experiment with pricing. Try short-term promotions and see what motivates buyers.
If you can make it through these tough times, you’ll be a smarter, more effective entrepreneur for the experience.