Money may not be everything, but it certainly makes things run smoother. Especially businesses. Without enough cash to operate, your business processes can seize, much like the way a car’s engine can seize if the oil level gets critically low.
If you’ve ever watched a business have severe cash flow problems (or had to manage them yourself), you know how unfun a cash flow crisis is. Deliveries stop. Credit isn’t available. Your options for what to do about it dwindle fast. And when it’s really bad… you start sweating over even making payroll.
I hope you’ve never seen any of that happen up close. I hope any cash flow issues you’ve ever dealt with have been minor, and have done nothing worse than slowed your businesses’ growth, or forced you to have to say no to an opportunity or an unusually large order.
But cash flow problems are rampant in small businesses. They’re often more pronounced in the early years of business, but businesses of any age can have them. Especially if the economy is uncertain.
Caption: Cash flow came in as the second most common accounting challenge in our 2017 Wasp Barcode Small Business Report – Accounting.
But while cash flow problems are common, some businesses do manage to avoid or minimize them. It is possible to run your business in a way that minimizes cash flow stress.
Here are a few ways how:
- Develop a cash flow forecast
This is the simplest thing you can do, and one of the most effective ways to predict and plan for cash flow crunches before they happen.
Granted, cash flow forecasts (aka as “cash flow projections”) aren’t perfect. They won’t help if something totally unforeseen occurs. But they can get you 70% of the way to a smoother cash flow. That reason alone is worth doing them.
A sophisticated cash flow forecast might also help you make decisions like:
- How will the books look in six months if you open a second location?
- How will they look if you hire those two new staffers?
- Can you afford to offer a 30% cut to a potential partner?
- Can you say yes to a massive, business-changing sized order?
A good cash flow forecast can inform all those critical decisions.
Because your cash flow forecast is a model, it should improve over time. So if the forecast is a little off the first year, tweak it. Keep improving it, just like you would with any other system in your business.
I know you’re busy, and it’s not like you need another project. This cash flow exercise could easily get pushed off your “must do” list. So ask yourself this: Would it be worth spending a day or two with your accountant and/or CPA if you could cut your cash flow problems in half by this time next year?
- Ask more of your accountant.
The biggest complaint about accountants, according to the small business owners we surveyed, was being “more reactive than proactive.”
This is the germ of cash flow problems. Because your accountant – and thus your business’s financial system – is more reactive than proactive, you aren’t seeing and planning far enough into the future. And so these cash flow problems sneak up on you.
Accountants are uniquely suited to help with this. As managers of the books, they have insights about how money is moving around, and what might be done to at least minimize cash flow pinches. So work with them. Closely.
Next up would be your CPA or tax preparer. For instance, if you aren’t filing taxes quarterly, even if you’re “just” a one-person shop, you’re probably going to experience some cash flow stress when tax time rolls around. Working more closely with your CPA might also reveal other things, too. Like the revelation that switching from an LLC to an S-Corp could save you thousands of dollars a year in taxes.
- Be ruthless about overhead costs, especially fixed overhead costs.
We hear a lot about being “agile” in business right now. One of the ways to be agile – one of the best ways – is to be able to cut your expenses quickly.
Overhead costs, as you know, can be a huge contributor to cash flow problems. So the smaller your overhead costs are, the better you can adapt to a cash crunch.
One example of this is advertising. It’s expensive, but alternatives like content marketing, where you create engaging, informative content your ideal customers might be interested in, can be done in-house for far less money than traditional advertising.
Another way to keep overhead costs low is staff. If you’re having even occasional cash flow problems, look to freelancers or outside services to get things done. In a pinch, it’s far easier to put a freelancer on hiatus than to fire a full-time employee.
Cash flow issues are inevitable. But with good planning and management, they can be diminished enough that they won’t threaten your business, much less your personal assets.
If nothing else, cash flow problems are incredibly stressful. They diminish how much focus and energy you have to give to your business. So if for no other reason, put some effort into minimizing the cash flow problems simply for the sake of your health and productivity.
Owning a business is hard enough – spend your energy on hard things that are far more rewarding, like launching new products or locations.
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Author: Brian Sutter