How to Better Manage Your Cash Flow

By on June 29, 2014

cash flowWhy is cash flow such a challenge for most small business owners? I recently gave a one hour workshop, sponsored by CAN Capital, at the Small Business Expo in NYC. When I arrived, the room was filled with business owners as well as people looking to start a business. They all wanted to learn how to better balance the ebbs and flows of money moving around in their companies.

Your Business is a Car

I started my presentation by asking each person to think of their business as a car. They were all going on a road trip to places they had never been to before. Their fuel for the trip was not the revenue generated by their companies, but rather the cash that actually went into their business checking accounts. Having that cash in hand allowed them to fill up their cars so they could drive closer to their destinations.

Where’s My Business GPS Plan?

When people take trips, they typically input the final destination into a smartphone and the app will tell them how far they need to travel, how long it will take and give them a few options on which route to choose in order to get where they want to go. Wouldn’t it be nice to have an app for our business that did the same thing? We do. It’s called a “business plan.” However, I refer to it as a “GPS plan.” Done correctly, the plan you create will tell you what it will take to reach your specific and measurable business goal (e.g. $1 million). The GPS plan will also tell you how to get there (increased existing business vs. new business) and what it will take in terms of support (sales, marketing, social media, etc.). If you use your business GPS plan properly, it will help you avoid cash flow problems by keeping you on top of the receivables and payables.

How Do I Keep Gas in My Car?

If you want to maintain adequate cash in your business, you must stay on top of two things:

  • Money Coming In: Don’t let “net 30” become “net 60.” If clients are starting to pay you late, have someone in your company call them to see if the late payment was an oversight or is it part of a larger problem. Be sincere but firm.
  • Money Going Out: Avoid unnecessary purchases in tight times. If your cash flow position has changed, don’t make a big purchase for your business that could wait a few months. New computer systems or a new advertising campaign will not immediately fill your gas tank should it run dry.

Avoid Speed Bumps & Potholes

Weather can change quickly when you’re traveling from one state to another. The business climate can also change very quickly. Man-made and natural disasters can wreak havoc on the cash flow of small businesses. If disaster strikes your business, it may mean thousands or even tens of thousands of dollars in unforeseen expenses. It’s hard to pay for major expenses that you didn’t see coming.

Another area to watch out for is when disaster strikes your customers’ businesses. If you have at least half your business in an area that gets hit by a disaster, then any unpaid invoices you have with those customers will probably stay unpaid for quite some time. Keep your eye on accounts receivables and be wary of the winds changing.

Take the 30 Day Test

If disaster does strike your business, how much money can you raise in 30 days without selling any assets? On the flip side, if opportunity knocks (e.g. you win a big account), how quickly can you have the necessary money in house in order to service your new client?  These are important questions to ask—BEFORE they happen. One option when opportunity knocks is to ask the new client for some money upfront to help you pay for the new expenses.

Outsource Some of the Driving

If managing financials isn’t a strong suit for you, get help. If it’s day-to-day coverage, think about hiring a bookkeeper. If you need help with the bigger financial picture and long-term financial planning, get some recommendations for a good accountant. The worst thing you can do is try to run your business and your financials when the latter is not your forte.

Taking a road trip and running a successful business can be exhilarating, fun and prosperous. Make sure you have the resources you need, a reliable GPS plan and, whatever you do, don’t run out of gas!


Photo courtesy: iStock/Thinkstock

About Brian Moran

Prior to rejoining the world of entrepreneurship, Brian was the Executive Director of Sales Development at the Wall Street Journal where he oversaw the sales development and marketing programs for the financial and small business categories among the many Journal brands. From 2002-2010, Brian was President of Veracle Media and Moran Media Group.

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