Cash flow crisis checklist for business owners

Start with what you can see this week

A cash shortage feels vague until it is written down. Before you make any decision, build a simple list for the next four to six weeks: the money you expect to receive and the date you realistically expect it, and the money that must leave and the date it is due. Use your bank balance, not your profit figure. A business can be profitable on paper and still be unable to cover Friday’s payroll.

Be conservative about receipts. An invoice that is thirty days overdue is a hope, not a deposit, so move it to a later week or leave it out until the customer has confirmed a payment date. Include everything that is fixed: wages, rent, loan payments, insurance, suppliers on short terms, and any tax payments coming due. If this list becomes a regular habit, the 13-week forecast approach covered in Sora’s articles is the natural next step.

Separate money that is not really yours

Two kinds of money in your bank account belong to the government rather than to the business: payroll deductions withheld from employees, and GST/HST collected from customers. The CRA describes these as funds held in trust, and it reviews them in what it calls trust accounts examinations. Late or missing payroll payments and late or missing GST/HST returns are among the reasons it may start a review.

In a crunch it is tempting to treat these balances as a loan from the CRA. That is usually the most expensive source of cash, because interest is charged on late amounts and the rest of the business is then exposed to enforcement. Rank these payments first on your list. If you truly cannot pay them on time, contact the CRA before the due date rather than after it, as described below.

A related point: the GST/HST you owe must be remitted for invoices you include on a return even if you have not been paid yet. A sales spike on credit can therefore create a tax bill before the cash arrives. Check this against your next return rather than finding out at filing time.

Bring cash in faster

Work through receivables from the largest and oldest to the smallest. Call rather than email for large balances, confirm the invoice was received and approved, and ask for a specific payment date. Where a customer cannot pay in full, a documented partial payment is better than silence. Pause new work for anyone who is seriously overdue until the account is current.

For future invoices, shorten terms, ask for deposits on larger jobs, and offer an easy payment method such as an online link or pre-authorized debit. Do not offer large early-payment discounts without checking the margin: a discount that costs more than a short-term loan would is not a good trade.

Slow cash out without breaking trust

List your suppliers and creditors by how much damage a late payment would do. Suppliers who control your ability to operate, and anyone holding a security interest in your equipment, come ahead of those who would only send a reminder. Then contact each one before a due date passes, with a specific proposal: a smaller payment now and the balance on a named date. A plan offered early is received very differently from a payment that simply does not arrive.

Review recurring costs line by line, including subscriptions, discretionary hiring and owner withdrawals. Pausing your own draw is a legitimate option, but record it properly rather than paying personal expenses through the business or borrowing from the company informally. Speak to your accountant about how owner payments and shareholder loans are treated before you move money in either direction.

Talk to the CRA and your lender early

If you cannot pay a CRA balance in full, the CRA says you can contact it, and it offers payment arrangements. Through My Business Account you can schedule a series of pre-authorized debit payments for corporate income tax, payroll deductions and GST/HST; the CRA notes that a business representative cannot schedule these debits for a business they represent, so you may need to do it yourself or call. An arrangement starts with your first payment, and you must keep paying on the agreed dates and file future returns on time. The CRA may also apply other federal payments you receive to the debt.

Penalty and interest relief is a separate and slow route. The CRA states it may cancel or waive penalties and interest when events beyond your control prevent you from meeting an obligation, but the average processing time was about 16 months at the time of writing, and it can vary. Treat it as a possible later step, not a way to fund today’s shortfall.

Approach your bank or lender before you miss a covenant or a payment. Bring the short-term cash list, the most recent financial statements and a clear request, such as a temporary change in repayment terms. Ask what each option costs in total, and be cautious about new financing that is repaid by daily withdrawals from sales.

Fix the cause and keep a weekly rhythm

Once the immediate gap is covered, find out why it happened. Typical causes are slow collections, tax bills that were never set aside, growth that tied up cash in stock or work in progress, and prices that no longer cover costs. Each has a different fix, and a good set of books will show which one applies. Sora’s cash runway tool and the article on why profitable businesses run short of cash cover this ground from another angle.

Keep the weekly list going for at least a quarter. Move tax money into a separate account on the day you collect it, and review the list with your bookkeeper or accountant each month. If the shortfall looks structural rather than temporary, that is the time for a frank conversation about pricing, costs or, in the worst case, whether continuing to trade is the right decision. Directors and owners should get professional advice before taking that step.