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Bottom Line Up Front

  • Even healthy businesses can quickly find themselves in a pinch when cash flow is off.
  • Make decisions about where to adjust operations or generate income before you cut costs. 
  • When cutting costs, be smart about where you trim and make sure it doesn’t affect sales.

Time to Read

4 minutes

August 22, 2022

Cash flow is one of the biggest challenges for any small business. Even if your sales are healthy and you pay your bills on time, you might still find yourself in a financial pinch if money is going out faster than it’s coming in. It creates a financial pinch: one that’s made even worse by unexpected expenses or an unpredictable slump in sales. 

If you’ve found yourself in the middle of a financial pinch, don’t panic. There are ways to ease the stress of a cash flow crunch and get your finances back on stable ground. Here are some tips to help keep a temporary situation from becoming more serious.

  • Increase revenue. While it might seem obvious, the first and best thing you can do to combat a financial pinch is to sell more. One of the oldest sayings in business is “revenue solves all problems.” While more revenue doesn’t fix supply-side cash flow issues, you’ll have money coming through the door that you can use to create stability elsewhere—such as paying employees. 
  • Cut expenses. Cutting expenses can mean anything from dropping services you no longer use to downsizing your office space to save the cost of the lease. Cut costs you can live without that don’t impact your ability to generate revenue. Keep in mind that cost-cutting is a subtractive solution to the problem, so it may not be as beneficial an increasing revenue, an additive solution. 
  • Review compensation. You may need to reduce workforce wages or hours temporarily. Your employees may be on board if they’re kept in the loop and trust that—if and when things improve—they’ll be rewarded. They will also be more willing to sacrifice if you cut your own salary, as well. In the worst case, you may find it necessary to lay off employees. This is a cost-cutting approach that should only be used as a last resort!
  • Talk with vendors. Most businesses work with partners or vendors who are critical in the delivery of a saleable product. If you’re having financial troubles, be upfront with them and talk through options. They may extend a line of credit to you or offer installment payments that help ease the burden on your cash flow while you navigate back into the black. 
  • Review net terms. The invoices you send to customers and clients should have net terms that accompany them. These terms represent how long the recipient has to pay the invoice: usually 15, 30, 45 or 60 days. If you’re paying your employees every 15 days or your bills every 30 days and your invoices are on net 45 terms, there’s a gap between when you spend money and when you’re paid. Look for opportunities to close this gap and ease the burden on your finances. 
  • Manage credit. A business line of credit can give you access to capital in a pinch, to get you through times when cash flow isn’t in your favor. Ideally, the time to set up a business line of credit is before you need it. If you haven't already set one up, talk to your business banker about a short-term loan or find out if you can refinance an existing loan to secure more affordable monthly payments to help you get through a rough patch.
  • Stay current on payroll taxes. Payroll taxes are withheld from employee paychecks and paid to the government on a monthly or semiweekly schedule. It’s your responsibility to make sure the money is reported and paid on time to the state and IRS. Failure to deposit payroll taxes in a timely manner can result in significant fines and penalties. In addition, you may be held personally liable for taxes that aren’t reported or paid.
  • Review business insurance. Keep your business insurance current. If you have to go through a bankruptcy and you aren’t currently insured, you may be unable to secure a policy. But, if you have a current contract and continue paying premiums on time, it’s unlikely your policy would be canceled in the event of a restructuring. It may also be wise to do a thorough inventory of your business assets and eliminate coverage for any assets that are obsolete or fully depreciated, so you aren’t paying more than you need to.

Lean on Your Banking Partner

If your business is suffering a cash flow crunch or a prolonged financial pinch, know that you’re not alone in facing it. Navy Federal Credit Union offers a wide range of free resources on how to manage your business’s finances with confidence. Check out our Business Solutions Education Center for more insights. 

Next Steps Next Steps

  1. Figure out the root cause of your financial pinch. What’s causing it? What financial variables are involved? What factors do you have control over and which ones are uncontrollable external forces? 
  2. Try additive solutions first (adding more revenue, working with vendors, adjusting net terms) before exploring subtractive solutions to fix cash flow (cost cutting, salary reductions, layoffs). 
  3. Talk with a Navy Federal Business Lending Officer at the first sign of trouble. They can help you work through your problem areas and find ways to help your business succeed.


This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.