Cash flow challenges can hit even the most successful auto shops, often leaving owners scrambling for solutions. Whether caused by unexpected expenses, slow customer traffic, or poor planning, running out of cash doesn’t have to spell disaster. Here’s how to take control of your finances and navigate tough times. This blog is based on episode 151 of Business by the Numbers Podcast, Click here to listen instead!
Analyze the Root Cause
The first step in solving any cash flow issue is understanding how you got there. Hunt Demarest of Paar Melis and Associates advises, “Don’t just dump cash into a sinking ship. Fix the issues that got you here first.” Whether it’s unchecked growth, pricing missteps, or external economic factors, identifying the root cause helps prevent future crises.
Preserve Cash Strategically
Before seeking external financing, make the most of the resources you already have. Demarest suggests putting expenses on credit cards where possible, extending your cash flow without additional interest (if paid on time). However, he cautions against neglecting critical obligations like rent or payroll—it’s about stretching resources, not creating more problems.
Be Careful Cutting Expenses
Cutting costs is a go-to solution during a cash crunch, but it can backfire. Eliminating vital expenses like advertising can harm long-term revenue potential. Instead, prioritize eliminating non-essential spending and focus on activities that bring measurable returns to the business.
Borrow Smartly
If external financing is necessary, choose your options wisely. Start by leveraging existing assets, such as real estate, to secure lines of credit with favorable terms. Avoid short-term, high-interest loans unless absolutely necessary. As Demarest explains, “If you think you need $50,000, ask for $100,000—it’s better to be over-prepared than underfunded.”
Plan for the Future
Once you’ve stabilized your cash flow, use this as an opportunity to improve financial planning. Build up reserves to weather future downturns and create detailed forecasts to identify potential risks early. A strategic approach ensures that today’s cash crunch doesn’t turn into tomorrow’s disaster.
Cash flow challenges are a reality for many auto shops, but they’re not insurmountable. By analyzing the root causes, preserving cash strategically, borrowing smartly, and planning for the future, you can not only survive but thrive. For more tips and expert insights, listen to the full episode of Business by the Numbers.
