Cash is the lifeblood of any small business. With sufficient cash flow you’re more nimble and have greater freedom. Without it, you’re a captive to covering your next payroll.
- Failing to estimate cash flow – Believe it or not, the biggest challenge most companies face is failing to properly forecast their cash flow requirements. Failing to budget at all is a huge problem too. Failure to modify your cash flow requirements in the face of changing conditions is just as significant. Cash flow estimates are critically important; they have to be a living document that takes into account changing needs as incomes, investments and expenses fluctuate.
- Large unexpected outlays – Frequently we hear that large, unexpected capital outlays throw organizations’ cash flow projections out the window. In reality, people fail to plan for large capital expenditures. If your company truck has 250,000 miles on it and is beginning to run poorly, the need for a new truck is not, in fact, “a surprise”. Proper planning of CapEx can definitely throw your cash flow into a crisis.
- Late Customer Payments – If your customers pay you late, it’s a problem. That’s why it’s critically important to develop an open and warm relationship with your clients. If they’re experiencing cash flow concerns, they need to tell you. You also bare a responsibility in making sure your customers pay in a timely fashion. Establish an expectation up front that late payments are not acceptable. If you don’t get paid, you can’t work!
- Slow Invoicing – Slow customer payments is an issue. When they don’t pay because you haven’t invoiced them, that’s your own fault. The more disciplined you are about billing, the more disciplined you can expect your clients to be in paying.
- Failing to secure favorable lines of credit – Every organization eventually runs into a cash flow shortage, especially if you have long lead times in delivery of your product or service. Securing a line of credit with favorable terms can have a significant impact on your cash flow. Poor rates and terms can be a killer if you haven’t budgeted for paying debt service.
- Misusing credit – Using unsecured credit such as credit cards can be very tempting in a pinch, but if you’re unable to pay off the balance you may get trapped with unreasonably high interest rates. This is one of the leading forms of avoidable cash flow drains.
- Overdrafts and bank fees – Overdrafts can be extremely expensive and when they’re unexpected, they can really take the wind out of your sails. If you experience NSF fees with any degree of regularity, it’s advisable to get overdraft protection.
- Unexpected tax bills – Tax bills can be a major foe to your cash flow. Even worse is when your tax bill is larger than anticipated.
- Legal bills – Getting sued (or having to sue others) is no fun! Legal fees and court costs can add insult on top of injury. Make sure that you have insurance to cover the common types of liability experienced in your industry. Speak with your attorney to see if a payment schedule is possible.
- Employee benefits – Employee benefits are a huge line item for most small businesses. Spend the time to research your options and make sure your benefits package is the best deal you can get while maintaining a high level of service for employees.
Building and maintaining a cash flow model can be challenging. If you need assistance building a cash flow model for your business, or you need help evaluating expenses, contact one of our Zinner professionals.
