Cash Crunch Crushing Small Business

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Bloomberg Business Week has an eye-opening article about the lasting shockwaves of the economic recession, which are still killing small businesses even as the country struggles to its feet.

The forecast for the national economy is undeniably rosier than it was a year ago, but companies that fell behind on payments or saw the terms of their agreements with banks and operating capital lending partners change are becoming late casualties. Bloomberg Business Week uses as an example M&J Kitchens, a 26-year-old business which finally succumbed to the dearth of cash flow that has plagued small business over the last three years:

More than a year into the official recovery, small businesses face what some say has become a permanent legacy of the recession: Their vendors are demanding faster payment even as their customers are taking longer to pay. Companies with the least bargaining power get squeezed the hardest. “The slowdown of currency, of money, the exchange, put us in a very precarious position,” says Davies, 50. “We basically had panic from our vendors.”

There is no instant remedy. Even if your business is in relatively good shape, the companies you work with directly may not be, and if they’re struggling to make payments on time it may begin to affect you. That can lead to a situation, as M&J Kitchens found, where you’re getting squeezed between creditors demanding payment and customers unable or unwilling to repay on time. It’s not an exaggeration to say that can quickly become a kiss of death for small businesses.

Steven LeFever, a featured speaker at the International Franchise Association annual convention in Las Vegas, compared the problems to dire health issues.

“(A) lack of profits is like cancer, while lack of cash flow is a heart attack. Either way, you die,” LeFever said.

What to do? Some firms have been selling off invoices at reduced rates to try and get some cash coming in, which can help in the short-term. In the long-term, though, it becomes a question of battling through the remnants of the recession and hoping the recovery starts booming to life.

If you’re facing these kinds of issues at your own business, we at Direct Capital wish you the best of luck. Debate any solutions you might have in the comments.

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