Cash Flow Slow? Tips to Liven It Up

Picture of Gina Blitstein Gina Blitstein combines her insight as a fellow small business owner with her strong communication skills, exploring topics that enhance your business efforts. That first-hand knowledge, matched with an insatiable curiosity to know more about just about anything, makes her a well-rounded writer with a sincere desire to engage and inform.

Cash Flow Slow? Tips to Liven It Up

In any given month, do you know the exact amount of money your business will take in and how much it will need to operate? Probably not. Very few - if any - businesses have a completely consistent, forecastable, stream of income and expenses. That’s why it’s so easy to encounter problems with cash flow from time to time. Tight cash flow isn’t a symptom of a suffering business; rather, it’s a symptom of a business that hasn’t accounted for the natural ebb and flow in and out of its coffers.

Cash flow can vary for a multitude of reasons, including:

  1. Unexpected expenses
  2. Seasonal slumps
  3. Unexplained slow sales cycles
  4. Large payment(s) coming due

Cash flow issues can range from the relatively small inconvenience of missing an opportunity to buy a large wholesale lot to the huge problem of not being able to pay a vendor. The problem can trickle down to employees when an owner can’t cover payroll. This does not make for happy workers! Moreover, the business’ credit can suffer if bills are not paid.

This situation can result in owners being particularly stressed about the viability of their business. This can put them on edge in the workplace, creating a toxic atmosphere for employees. They can lose sleep and/or develop health concerns. In some cases, owners forego their own paycheck in order to keep funds available for use in the business. Additionally, an owner with cash flow problems is not saving for her own retirement. Indeed, cash flow is a common sticking point for business owners. In The State of Small Business Cash Flow, a Quickbooks report says, “…61% of businesses regularly struggle with cash flow, and nearly a third have been unable to either pay vendors, loans, themselves or employees.” No matter the specific results of poor cash flow, it sets your business on a precarious financial foothold, constantly uncertain as to what expenses can be covered.

Clearly then, getting and maintaining a firm grasp on your business’ cash flow is of paramount importance. Here are some suggestions for taking control of your business’ cash flow to ensure there’s always money available where you need it, when you need it:

  • Analyze your business’ financial habits. Whether you utilize financial software or hire a CPA, get an accurate picture of your business’ typical income and expenditures. Then you’ll know how much you need, at a minimum, to cover all expenses.
  • Know the time between invoicing and payment. Realistically, it takes a certain amount of time between billing and receiving your money. Be sure to account for that lag time when considering your business’ income.
  • Build a buffer in your budget to cover unexpected expenses and emergencies. It’s prudent to maintain enough extra cash to keep your business afloat for six months. This money will help you through any dry periods as well enable you to seize a growth opportunity.

It really comes down to smart management of the money that comes in and goes out. Here are some ideas that may help:

  • Borrow money before you’re struggling. Take out a business line of credit when finances look rosey. If you wait until things aren’t looking so bright, you may not qualify for the loan.
  • Try to avoid using credit cards when cash flow is slow. They may be convenient in a pinch, but don’t rely on them on a regular basis. The interest will severely cut into your profits.
  • Bargain for better pricing and terms with vendors. The longer your money stays with you, the better. Negotiate with your vendors to extend you longer payment terms so your money can continue working for you as long as possible.
  • Remain vigilant about where your money goes. Periodically review your business expenses. Could you hire freelancers for specific skills to avoid hiring full time employees? Are there savings to be had in leasing rather than owning certain equipment? Do you qualify for discounts on your business insurance?
  • Keep your billing up to date. Make certain you have and regularly use a consistent billing system. And make certain you are being paid in a timely manner. It’s important that your small business gets paid!

Knowing what comes in and goes out is the basis for keeping your cash flow liquid. Once you establish that, you can take steps to make sure you can not only meet expenses, but run your business optimally. Smart cash flow management can help your business meet its expenses, keep employees happy, save you money and prime you for success.

Is your business’ cash flow slow?

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