Most businesses that fail do not fail because the idea was wrong. They fail because they ran out of cash at a moment when they could not raise any, and a great many of them were profitable on paper when it happened.

A cash crunch is a timing problem before it is a solvency problem. What you do in the first week determines which one it stays.

First, work out how many days you have

Not a feeling. A number. Take the cash in the bank, add what will realistically arrive in the next 30 days — realistically, meaning from customers who actually pay, not everything invoiced — and subtract what must go out: salaries, rent, the debit orders that will run whether or not you stop them, and anything you have already committed to.

That number is your runway in days, and knowing it changes every decision that follows. Owners who avoid this calculation because they are afraid of it end up making choices in the wrong order.

Then work in this order

  1. Collect. Every overdue invoice, today, by telephone. This is the fastest cash available to you and it costs nothing but discomfort.
  2. Stop the outflows you control. Subscriptions, non-essential orders, anything discretionary. Do it in one sitting rather than agonising item by item.
  3. Talk to the people you owe — before you miss the payment, not after. This is the single highest-value hour in the whole process, and it is covered separately.
  4. Sell what is idle. Stock that is not moving, equipment you are not using. Slow money is better than no money.
  5. Only then look at borrowing, and be careful: expensive short-term credit taken during a crunch is how a timing problem becomes a structural one.

What to protect first

Some obligations are not like the others.

Employees' tax and UIF deducted from staff is not the company's money. It was withheld on somebody else's behalf, and failing to pay it over carries consequences that can reach directors personally. Do not treat it as working capital, however tempting it is when it is sitting in the account.

Salaries come before almost everything else, both because people have their own obligations and because a business that misses a payroll usually loses the staff it needed to recover.

Suppliers with whom you have a relationship will usually take a partial payment and a plan. Suppliers who are told nothing will take legal action.

Be honest about which problem this is

A timing problem is one where the money exists, it is simply arriving after it is needed. It is fixed by collecting faster, paying later, and bridging the gap.

A structural problem is one where the business does not generate enough to cover what it costs to run, and no amount of bridging fixes it — it only makes the eventual number larger. The tell is simple: if you fixed every late payment today, would the business be fine? If the answer is no, the work is on pricing and costs, not on cash.

Owners commonly borrow through a structural problem for a year, and the year is expensive. It is worth taking advice early, when there are still options, rather than at the point where there is only one.

General guidance, not financial or legal advice. Where the business may be unable to pay its debts, get proper advice early — directors have duties that attach in exactly that situation.