As solopreneurs or small business owners, many of us have faced the nerve-wracking situation of a cash flow crunch. You know the money is coming, but it’s not here yet, and the bills are piling up.
So, who do you pay first?
It's a real question that’s not only practical but also moral, and one that reflects the delicate balance between maintaining relationships, keeping operations running, and managing your personal and professional reputation.
This decision is complex because it’s not just about numbers; it’s about sustaining your business in the long term while making sure that the lights stay on in the short term.
My suggestions are based on 3 decades of keeping the lights on, at times surviving, but mostly thriving:
Keep the Lights On – Literally and Figuratively
If you’re working from home (as many of us are these days), you absolutely cannot afford to let your utilities be cut off. Electricity, internet, and phone services are vital to any business, whether you’re a consultant, a digital marketer, or an e-commerce shop owner.
Even for solopreneurs with minimal overhead, losing access to these basic services can bring your entire operation to a standstill. Without electricity or an internet connection, you simply can’t work, and worse, you can’t communicate with clients, suppliers, or potential leads.
Take Care of Employees (If You Have Them)
Some of you may have freelancers or part-time contractors who assist with aspects of your business like virtual assistants, graphic designers, or web developers. These are people, not large corporations, and they rely on you for their livelihood. If you stiff them or delay payment, it can damage relationships and make it harder to get their help when you really need it.
In the hierarchy of payments, it’s crucial to ensure that anyone who helps you deliver services or products to your clients is paid. When you prioritize paying them, you're not only keeping your business running but also protecting your reputation as someone who treats others fairly. Good relationships with contractors and freelancers are a valuable asset to any small business owner.
Vendors and Suppliers are the Backbone of Your Business
Next in line are the vendors and suppliers who provide the goods or services you rely on to keep your business functioning. If your business requires inventory, like promotional products or printed marketing materials, you need to ensure those supplies keep coming. If you work with a tight-knit group of vendors, communicate with them about your situation. Many small businesses and solopreneurs are in the same boat when it comes to cash flow issues, and they may be willing to extend credit terms or accept partial payments.
Prioritizing vendors is crucial because falling behind can impact your ability to deliver to your clients. If you can't get the necessary materials, your business grinds to a halt, and that means no revenue stream in the future either. Keeping your supply chain intact ensures you can continue to operate, even if you're operating lean.
Debt Obligations: Banks, Loans, and Credit Cards
If you have loans or credit cards, it’s critical to prioritize these obligations, especially if they’re tied to your personal credit. Missing payments can hurt your credit score, which can have long-term effects on your ability to get credit for your business or personal needs in the future.
While it might seem tempting to let these slide in favor of paying for more immediate needs, consider working with your lenders to extend your payment terms or refinance. Many banks and credit card companies offer hardship programs for small business owners, especially if you’ve been a reliable customer until this point. The key is to keep the lines of communication open. Don’t wait until the payment is overdue and reach out in advance, explain your situation, and negotiate a solution.
What About Landlords?
With the rise of remote work, the issue of rent or a business lease has shifted for many solopreneurs. If you no longer rely on a physical office space, then rent might not be a high-priority concern. However, if you do have a brick-and-mortar location or lease warehouse space, this is still a major financial obligation.
Just like with your creditors, many landlords are willing to work with you if you communicate openly. They may offer deferments, partial payments, or other flexible options to help you get through the tough times. As long as you’re transparent, most landlords would prefer to keep a tenant in the space rather than deal with the hassle and uncertainty of trying to find someone new.
Clients and Fellow Solopreneurs: The Ethical Dilemma
Here’s where things get tricky. What about your fellow solopreneurs and small businesses that you owe money to? These people are just like you, running lean businesses with tight margins, and they’re often providing excellent services that help you thrive. If you let these payments slide, you could hurt your relationships, and that might have a long-lasting impact.
In this case, it’s essential to communicate. Small business owners understand cash flow issues better than anyone. Many of us have been there before or are currently experiencing it ourselves. Let them know when they can expect payment and be as transparent as possible. This shows respect for their work and builds trust, which is crucial for long-term relationships. If possible, prioritize small payments to them even while juggling your other obligations, because their work helps sustain your business, too.
Your Personal Expenses: Don’t Forget Yourself
Finally, don’t forget that your personal finances matter. After all, if you can’t pay your rent or mortgage, utilities, or other household expenses, it will affect your ability to keep running your business effectively. In some cases, it may make sense to temporarily cut back on your own salary or personal withdrawals from the business, but don’t leave yourself completely without funds.
Always remember that open communication and maintaining strong relationships are as important as paying bills. Your integrity and reputation are key to weathering a financial storm and thriving in the future.
Comments