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Cash flow management issue for businesses of any size

Cash flow management can be a problem for any business. The income statement may indicate a profit, but an underlying condition can show up when the business runs out of cash. The worst symptom is an overdrawn notice from the bank. A lack of operating funds is common and repeatedly the cause of business failure.

Small businesses are vulnerable to cash flow problems since they frequently operate with little or no cash reserves. Sometimes, the owner is too busy to notice negative cash flow. In its simplest form, cash flow literally refers to the movement of cash into and out of the business. Cash flow management includes identifying both the sources and uses of cash. Even if it is possible to raise more money from other sources, such as the owner’s personal funds, sooner or later the timing of cash inflows must match the outflows if the business is to survive. A good tool to have is accounting software such as QuickBooks, Sage One, or FreshBooks that allow the owner to have Internet access to financial reports. Cash flow management can easily become a daily or weekly routine. It’s crucial to enter the data correctly in the accounting software and most programs offer tutorials and online help.

A deficit needs to be addressed when there is negative cash flow. Two options exist: Spend less or increase revenues. Many small businesses struggle to get spending under control. Oftentimes, they do not have proper expense management policies in place. If spending less isn’t an option, it may be time to look at accounts receivable and inventory. Collections could be made sooner or less cash can be tied up in inventory. For certain types of businesses that have substantial accounts receivable, the owner might be able to utilize a factoring provider to gain immediate access to revenues. Trade credit is another avenue to slow cash outflows by asking suppliers if they offer extended terms or special financing.

When a mature business needs help with their current cash flow situation, sometimes another set of eyes can spot problems and offer solutions. The Small Business Development Center offers assistance to businesses that may be struggling by helping them to understand their financial statements and identify areas for improvement. Sometimes a small loan or line of credit can be in order, and a business plan will help persuade a lender. Ultimately it is about understanding the business’s cash flow cycle. A controlled cash flow will more than repay the time and effort given to achieve it. It may save the life of the business.

Gordon Smith is a business specialist at the Small Business Development Center at Clovis Community College. Call the center at 769-4136 or visit www.nmsbdc.org/clovis

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Cash flow management issue for businesses of any size

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