Cash flow is the lifeblood of any business. A business can have a great product or service, but it needs the cash to pay its bills to succeed. According to the National Federation of Independent Businesses, more than half of businesses that closed in 2010 did so because they ran out of cash.
Several factors can affect cash flow, but one of the most important is its revenue stream. A business needs to bring in more money than it spends to stay afloat. This can be a challenge, especially during tough economic times.
But there are ways to improve a company’s cash flow. One of them is making personal sacrifices to help the business. It might be a difficult choice, but it will be a worthwhile decision to help your startup survive. Here are a few ways to make personal sacrifices to help your business.
What to Do Before Considering Personal Sacrifices
Of course, your personal life should not suffer because of your business. Before you make any drastic changes, you must take some steps first.
- Increase Revenue: One of the best ways to improve cash flow is to increase revenue streams. This could mean increasing sales, getting new customers, and improving customer retention rates.
- Reduce Costs: Analyze your expenses and find areas where you can cut costs without compromising quality or service. Negotiate with suppliers for better deals and shop for the best materials and service prices.
- Make deferrals: Talk to creditors such as landlords and suppliers about deferring payments until cash flow improves. See if they will offer payment plans or discounts in exchange for your longer-term commitments.
- Seek financing: Consider financing options such as lines of credit or business loans. Look for ways to leverage your assets, such as using credit cards or refinancing a home mortgage to free up cash.
These business tactics are the first steps to improving cash flow and should precede personal sacrifices. If these don’t work, that will be when you consider making changes to your budget.
Put a Hold on Your Salary
The golden rule of running a business is always to pay yourself first. No matter how tight money is, you must ensure you get paid. However, if your business needs to conserve cash, it might be worth taking a pay cut or putting a hold on your salary altogether until the situation improves.
Since it is business money, you should take note of the IRS rules regarding taking a salary. According to the IRS, you must pay reasonable compensation for your services rendered. It will be a confusing process, so consult with a tax professional.
Decrease Expenses
Finding the proper funding for running a business will start with you taking on business loans and building enough capital to sustain your business. To do that, you must decrease your expenses and start saving.
Cutting back on spending is one of the easiest ways to free up cash for the business. Avoid household bills such as energy, phone, cable, and other non-essential services. You can also limit restaurant meals and trips out of town until your finances improve.
Your home will likely be an expensive asset, making it necessary to consider downsizing or renting out a room to generate more income. However, refinancing might be ideal if you only have a few months of cash flow problems. You can find companies with refinancing mortgage options to help you make your monthly house dues affordable. While it is an essential sacrifice, it will help you financially in the long run.
Use Personal Assets
If cash flow is a persistent problem, consider using your assets to support the business. Taking out a personal loan or borrowing from friends and family can be a great way to get funds for your business needs. However, please ensure a repayment plan with set terms and conditions to avoid potential conflicts.
You can also use your retirement savings as backup funding for short-term emergencies. A 401K loan should cover most of your costs until you can return the money when finances become more stable. If you are considering this option, speak with an accountant to understand its tax implications beforehand.
Finally, selling off particular personal possessions or investments can be an ideal way to generate funds. You can sell your car, jewelry, or even stocks and use the money for your business needs.
Final Thoughts
Making personal sacrifices to save business money is a complicated process. While it might be hard, try and view it as an investment in the success of your business. Once you have conserved cash flow and optimized finances, you can focus on growing your business, developing new products or services, and finding new customers to help get your company back on track. Doing so will make all of the initial sacrifices worth it.