Facing a Cash Crunch

Five Causes of a Cash Crunch

Healthy cash flow is the lifeblood of all businesses. Without adequate reserves of cash, owners stay awake at night thinking about debt coverage, meeting payroll, dwindling inventory levels, covering taxes, etc.

While The Southern Bank’s clients are each unique, there is typically one of five key causes for their liquidity concerns. These include:

1. Rapid Growth

On the surface, growth can hardly be viewed as a bad thing, but unanticipated or swift sales can potentially put a company out of business. More sales means more inventory, more people, and the need for more money. If your revenue is growing, but your working capital stays the same, that next big customer order you fill could leave you short on cash for your next supplier payment, tax bill, rent check, or loan payment.

2. Expanded Product Offerings

In addition to revenue growth, new projects and new products can require a substantial investment. Delays in launch, unsuccessful initial sales, and development related expenditures can devour a company’s cash balance. Diversifying your offering is a viable and often game-changing strategy, not having a cash safety net in place prior to doing so can be deadly.

3. Seasonality

Perhaps the most common cash crunch amongst customers, excessive seasonality can wreak havoc on a company’s balance sheet. Large cash needs followed by significant cash inflows followed by a quiet season can make planning difficult if not impossible to predict. Having a flexible financing and working capital solution in place can allow business owners to take advantage of seasonal sales rather than succumb to them.

4. Delayed Customer Payment

Customers extending their payment terms is quickly becoming the norm. As large multi-national businesses continue to stretch their suppliers, the smaller, regional suppliers of raw goods and services are now experiencing the ripple effect (read more about Longer Payment Trends here). Whether it’s a delinquent customer or a customer with buying power and long-terms, delayed customer payment can cause an enormous strain on your own cash conversion.

5. Unexpected Events

Abnormally large tax bills, law suits, customer bankruptcy, inventory obsolescence… there’s really no shortage of things that can simply go wrong. No matter how much preparation or cash reserves you have in place, there is always the potential for your cash position to be consumed by an unexpected event and for your business to go from healthy to distress.

Whatever the cause may be, The Southern Bank’s Cash Flow Management program works with companies to put their business back on stable ground. We fund working capital needs through a variety of traditional and non-traditional bank products and services.

Whether it be a traditional line of credit, an asset based line of credit, a factoring line, or some combination of the three, you can expect The Southern Bank to develop a cost-effective solution that relieves the cash crunch and gets you back to doing what you do best – running your business.

Contact us today and start funding your business.