Contributed to EO by Brooke Lively, an EO Fort Worth member who is founder and president of Cathedral Capital, which provides strategic financial advice to drive profit. By creating customized teams of financial professionals to analyze data trends and guide entrepreneurs through their numbers, CathCap serves as support to predictably scale and grow businesses.

When is the best time to plant a tree? Ten years ago. And when is the next best time? Today. 

Confucious

I agree with this age-old wisdom, which also applies to cash crunches. The best time to avoid a cash crunch is well before you find yourself in one. But how do you know one is coming? Most small companies just check their bank balance and figure out they can’t make payroll. But there isn’t a lot you can do about it at that point.

It’s a best practice to have a Cash Flow Forecast that tells you how much money you are projected to have at the end of each week, and which extends to encompass the next six to eight weeks. That way, you can make plans and avoid a cash crunch that may be looming.

A few years ago, I was going over a Cash Flow Forecast with a client in Oregon named Dan. We looked out seven weeks and saw a big red negative number. Dan (understandably!) started to panic a little, but once he calmed down, we systematically went through all of his options.

Here are seven questions to ask yourself when you’re facing a cash crunch:

1. Can we use our line of credit (LOC) and transfer the needed funds?

Unfortunately, Dan didn’t have a LOC, so that option was out. 

2. Are there any unnecessary expenses that we can cut that will resolve the problem?

Dan and I looked into this during previous cash crunches, and he was running pretty lean. There wasn’t anything he could cut that would solve this particular problem.

3. Can we move a big bill out a week and solve the problem?

Some big bills can be moved. For example, your landlord is usually fairly understanding if rent comes in a few days later than usual. That wouldn’t work for Dan—the negative number was too large. We would have needed to move payroll, which is typically the last thing you want to do. Your employees need to feel confident that they are going to get paid on time, or they will start looking for new jobs.

4. Do we have room on the credit card to just pay the minimum and try and catch up over the next month or two?

Dan’s credit cards were pretty much maxed out. Had we only paid the minimum, a lot of charges for services he needed to keep the business running would have been declined. So that wasn’t an option.

5. Can we apply for a line of credit in time?

We had seven weeks, which is usually enough time. However, he had tried applying for one a few months earlier and had been rejected because of previous situations that made his financials look unappealing.

By this time, my client was really getting worried. We had gone through all the options that involved expenses and credit. But the list wasn’t exhausted yet.

6. Can you, the business owner, forgo your salary or draws this month?

This is a radical, last-ditch option. At CathCap, we believe that if the owner of the firm doesn’t have enough cash at home, they aren’t going to make solid business choices. I consider this a last resort, as we had one other option to consider before it became necessary.

7. Is there a new product or service that you can quickly start selling to balance the loss you are facing?

This turned out to be the key question with Dan. He and his wife/business partner had been thinking about a new service. They had been keeping notes about it in a blue binder. They pulled out the blue binder, made some calls, finished building out a few key points—and then started selling! 

A week later, the cash crunch had disappeared from his Cash Flow Forecast. The Blue Binder Project was a hit with his clients. What I love about this story is the far-reaching impact the Blue Binder Project had on not only his business but also on his clients’ lives and even the Oregon court system.

Dan’s Blue Binder Project was a program taught by a licensed counsel that helped people who had been charged with DUI (driving under the influence of drugs or alcohol) dig deep to find the reasons why they drink or take drugs and help them toward sobriety. These people are then able to take their graduation certificates to their sentencing, and the judges take that into consideration when meting out punishment.

What a great service to provide—for the clients, their families, and frankly, for all people on the road in Oregon. Dan took something that had been sitting on a shelf and changed lives—in addition to eradicating his cash crunch.

For more insights and inspiration from today’s leading entrepreneurs, check out EO on Inc. and more articles from the EO blog.