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Keeping Cash Flow Crunch From Hurting Your Business

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Many small businesses fail because they lack adequate cash, and almost every business — even highly profitable ones — faces periodic cash flow problems. “Cash flow problems have a habit of sneaking up on a business, especially in a rocky economy,” says Tage Tracy, principal owner of TMK & Associates, an accounting, financial, and strategic business planning consulting firm. Tracy recently offered the following tips to the NSA & Small Business Section on keeping your business going even when the cash isn’t flowing. 

Plan, plan, and plan some more. Proper planning is essential to the launch, growth and ultimate success of your business as measured by the ability to generate profits and, just as important, to avoid running out of cash. According to Tracy, “Having access to sound financial plans structured for different operating scenarios is an absolute must.”Keep and understand complete financial records: Many business owners do not maintain accurate accounting records or produce financial statements. Too many entrepreneurs think that if their business is making a profit, the cash is coming in the door. This is a critical mistake because cash flow needs to be managed. “Even if profit is good, cash flow can be bad,” says Tracy. A comprehensive financial statement can provide invaluable information that will let you make sound financial decisions. When it comes to keeping your financial records, apply the acronym CART: complete, accurate, reliable, and timely.

Protect cash at all times. Cash is a liquid and marketable asset, but that makes it highly susceptible to being lost. So take care not to let your available cash slip out the door if you can avoid it.

Be creative in generating cash. Entrepreneurs have a number of options for generating cash when needed, says Tracy.

  • Vendors and suppliers often can be good sources of financing becausethey don’t want to lose your business.
  • Be proactive in building relationships with banks, leasing companies, and even the federal government to ensure that cash is made available when needed.

Understand your business cycles: Completing assignments, contracts and sales often takes much longer than many business owners think, which means that cash often takes longer to start coming in. Make sure you understand exactly how long a business deal will take so you can plan accordingly.

By following sound cash-flow practices, you will position your business to take advantage of growth opportunities.

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