Dealing with a sudden cash flow shortfall can be stressful and absorb all your attention when you should be working on other tasks. While your goal should always be to avoid shortfalls, cash flow issues can arise despite your best efforts. For example, a global recession can cause a slump in sales or a formerly reliable customer can take much longer to pay than anticipated. If you’re starting a small business, it could simply be taking longer than expected to make a profit.

The importance of forecasts

Time gives you options. Lack of time reduces your options. If you suddenly find yourself in the middle of a cash flow crisis, your options are more limited.

The way to gain more time is through a cash flow forecast. A realistic forecast shows lenders that you’re looking ahead and actively managing your cash flows.

If you don’t already use forecasting, start by preparing both a best and worst case cash flow forecast, so that you have a good idea of what your future financial needs will be. The first question you’ll be asked when you ask for help with additional finance is: “How much do you need?” If you have detailed information and forward projections at hand, it’ll be easier to talk to your NAB Small Business Banker about the shortfall funds you need. The projections will also give you a good indication of how long you’ll need the money for.

Identify the cause

Your forecast may also help you identify what caused the cash flow crunch. Lenders will ask about the cause and you also need to understand the issue so you can explain the changes you’re making to avoid a repeat event.

Below are some common causes and possible solutions:

  • A major customer hasn’t paid on time. Do you need to implement stricter credit control and better debt collection procedures?
  • A rise in the cost of production has eroded your profit margin. Can you source less expensive materials or supplies, or do you need to raise your prices? Are you monitoring your gross profit margin for any further profit slippage?
  • Your business overheads have blown out. What specific expenses have increased and what are you doing about them? Are you regularly monitoring your net profit margins to spot any out of proportion increases so you can take timely action?
  • The business has been growing rapidly. Is your business growing faster than your capacity to fund the growth (your working capital)? There’s usually a time gap between selling goods or services and getting paid by customers. Meanwhile there are bills to pay. Do you need to slow down to avoid failure through overtrading?
  • Sales have been slower than predicted. What steps have you taken to change this? When are sales likely to improve? Alternatively, if you can’t see any future improvement in sales, is your business still viable?

There may be other causes such as the failure of a major contract or asset purchases you’ve made at the wrong time. In each case, explain the cause and the action you’re taking to avoid a repeat, such as diversifying your customer base or using your cash flow forecast to time purchases more appropriately.

Internal funds

Before you look for external sources of funding, can you free up cash from within your business? For example:

  • Offer customers a discount for early payment or ask them to pay immediately by credit card.
  • Hold a sale of surplus or slow-moving stock to raise cash quickly.
  • Ask suppliers to take back excess stock or give you better credit terms.
  • Sell underused assets and rent the equipment instead, as and when required.
  • Downgrade or sell vehicles and lease instead.
  • Reduce your drawings from the business until revenues improve.

Your accountant and advisers may be able to suggest other ways to release the locked-up cash in your business.

Consider your best interests

If you still need funds, make sure that taking on more debt to finance your business operations is really in your best interests. If you suspect the cash flow shortfall is not temporary and your business is no longer viable, there's little point in taking out more debt to postpone the inevitable. It might be better to cut your losses sooner rather than later. Even if the shortfall is likely to be temporary, it’s still a good idea to talk to your accountant or advisers to ensure you’re making the right decision for your business. They will be able to suggest where to go for help and advise you on the latest rates and what you can expect to pay.

Sourcing finance

There are a number of funding options to consider, ranging from self-financing or bank loans through to finding a business partner. The relative attractiveness of each option will depend on the size of your cash flow shortfall and how long you’re likely to need the cash.


If you have savings, this might be a once-off cash injection. Alternatively, you can use your personal credit card to pay for some business purchases to ease cash flow or take out a personal loan to tide your business through a temporary rough patch.

Self-finance may seem an easy option but bear in mind that putting more of your personal resources into the business might not be in your long-term best interests. Get advice first on the viability and future prospects of your business.

Family and friends

You can ask family, friends or business colleagues to help out with a temporary or longer-term loan. It’s best to put the agreement in writing and get everyone to sign it, so that both sides are clear on what has been agreed. Be aware that this type of agreement could strain personal or working relationships if things go wrong.

Bank loans

If you have a good banking track record, it could be little more than a formality to get a higher overdraft facility or access to a business loan to tide you over. If you’re going to need quite a lot more money, you’ll likely have to present a more detailed business plan and financial forecasts. Your NAB Small Business Banker will use this to assess the risk of lending the money to you before making a decision.

Debtor finance

If you have steady business sales, you might qualify for NAB Invoice Finance. This facility enables you to borrow money based on the strength of your business sales. The benefits include the flexibility to manage seasonal fluctuations and a facility that can increase in line with your business growth. An added attraction is that the credit limit is based on business sales, rather than mortgage-based fixed asset lending.

Partners and investors

If your business can’t afford to service loan repayments out of surplus cash flow, then it may need more capital. This might apply for instance in the case of a new business that may need more than a year to break-even.If you’re looking for a sizeable amount of money or need a longer-term investment, you could consider taking on a business partner to invest in your business.

There are advantages but also pitfalls to avoid. Get expert advice first from your accountant and your lawyer - they may know of suitable investors. Be aware that you’ll need to share the ownership of your business if you go down this path.

Compare costs

Review all financing options available to you, then detail the costs associated with each option. Try to list both opportunity and relationships costs as well the financial costs. Only then will you be in a position to make the best decision for you and your business. A loan from your spouse, for example, might be the cheapest way to access cash, but only you will know how this will interfere with your personal relationship. Unless the option you choose locks you into a long-term agreement, put a note in your diary to review your financing options in a few months or at least within the next 12 months.

If you are a small business experiencing financial hardship, you can also reach out to us via our Customer Care Small Business team.

Please note that this is a guide only and should neither replace competent advice, nor be taken, or relied upon as financial or professional advice. Seek professional advice before making any decision that could affect your business.

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