Here's What Happens When Your Small Business Runs Out of Cash

Running out of money can be terrifying. It's the kind of thing that keeps small business owners awake at night. As a small business owner myself, I know I've had my share of 3 a.m. cold sweats trying to figure out how I'll keep the ship afloat. My biggest lesson? Try not to panic. (I know that's easier said than done.) Instead, focus on concrete steps you'll take to get out of this situation.

It's also important to know you're not alone. Cash flow issues are relatively common for small business owners, especially in the early days. Indeed, the latest QuickBooks Small Business Insights report showed that almost half the small businesses surveyed had cash flow problems. Not only that, but 3 in 5 have unpaid invoices.

1. Look at why your business has run out of cash

Take a beat and try not to jump at quick fixes. Scour your balance sheet, income statement, and cash flow projections. There are many reasons your company could be in hot water. Before you look for solutions, think about what happened and how bad the problem is.

Try to figure out if this is a short-term issue or a sign that there's a bigger problem at play. How much cash do you actually have? Can you cover your next payroll? Are sales falling? Has inflation pushed your costs up more than you'd realized? Did you have to pay for unexpected repairs? Or have you just shelled out a lot for inventory or an expansion?

Even highly profitable businesses can run into cash flow problems. You may be waiting for several big payments from clients that will make all the difference. But it may be that your company is not profitable and your cash flow problems are only going to get worse. This may call for more drastic action.

2. Find ways to get the cash you need

We mentioned your cash flow projection above. If you don't have one, sit down and figure out what money will come in and go out of your business bank account in the coming weeks and months. This will give you a better idea of how long you'll be running with an empty tank and what amount of cash you'll need to survive.

Here are some ways you might be able to access cash quickly:

• Follow up on unpaid bills: If your cash flow issues are down to late payments from your clients, get on the phone and chase that money. If your clients aren't able to pay it all, see if you can get at least a partial payment.
• Send invoices early: If you're waiting on a couple of big payments, the sooner you bill them, the sooner you'll get that money. Depending on your business and your relationships, you could even try to negotiate to get that cash more quickly.
• Sell more: For some companies, a sale or aggressive marketing campaign might bring in some immediate cash and improve cash flow. This is more of an option for companies that rely on immediate sales than, say, a building company that operates with much bigger time frames.
• Use a business credit card: A business credit card can help tide you through difficult times, but high interest rates mean it can get expensive to carry a balance over time.
• Look for a short-term business loan: It can be hard for businesses to access credit, but a business or personal loan may be a lower-cost way to borrow than using a credit card. Use your cash flow projection to work out how much you'll need and how long it might take you to pay it back.
• Talk to your bank about an overdraft: Negotiating an overdraft with your bank means you'll still pay interest, but could avoid costly fees or declined transactions.

3. Cut costs as much as possible

The more you can reduce or delay your spending, the more time you buy yourself to fix your cash flow issues. Here are some moves to consider:

• Where possible, stop spending: Some spending is likely essential to keep your company going. Cut or put a temporary hold on everything else.
• Negotiate payments: If you have good relationships with your suppliers, you may be able to extend your payment window or even get them to discount their rates. Be honest about your situation and how you plan to pay them further down the road.
• Talk to your landlord: Rent is often a significant outlay, so if you can delay your rent payment for a month or two it could give you some breathing space. Given that it's not always easy for landlords to find new tenants, they may be willing to negotiate.

How to avoid running out of cash

While many businesses do run out of cash, it isn't an ideal situation to find yourself in -- particularly if it happens regularly. It can damage your relationships with your clients, suppliers, and employees. In a worst-case scenario, cash flow problems can cause even a profitable business to fail.

Once you've got through the immediate crisis, look for ways to avoid future cash flow issues. Try to build regular cash flow reviews into your schedule so you can predict future problems before they happen. You might also focus on building more cash reserves so you have a bigger cushion in the future. Sure, that may mean you have less money to grow. But sometimes it's better to secure your foundations before you expand.