When you think of things that could bring down your business, you probably think about outside forces such as too few customers, rising materials costs, or overbearing government regulation. But did you know that internal cash management issues are the primary reason most businesses fail?
Who’s in charge of internal cash management? You are.
Poor cash management: The #1 threat to your business’ success
In the most simplistic terms, every business runs like a math equation: money comes in, and money goes out. If more is going out than coming in, the business will eventually fail. Period.
Customers largely decide how much cash is coming into your business, but management (that’s you) is 100% responsible for deciding how money is distributed once it hits your accounts receivable. Poor cash decisions on your part can singlehandedly bring down a business that would thrive otherwise.
How to Construct a Secure Cash Flow System
Step 1 — The first step in a good cash flow system is knowing your expenses ahead of time, so you can plan accordingly. Weekly, monthly and yearly cash flow projections will help you get a clear picture of how much cash needs to come in and out of your business in a certain amount of time. By staggering your expenses and correlating them with your projected profits, you can keep your company in the black quarter after quarter.
That being said, it’s impossible to predict every single expense that will hit your business. If you can afford it, keep a stash of backup cash to deal with emergencies. If that’s not possible, you’ll need to know where you’ll get extra funding when you need it. A business line of credit can be a real lifesaver when unexpected costs rear their ugly heads.
Step 2 – When a growth opportunity comes your way, you need to have cash on hand to grab it before your competitors do.
Working only with the profits you’re bringing in is the safest way to run your business, but it’s almost always the slowest path to growth. Investors and a business line of credit are good ways to get extra working capital when you need it fast. Even if you think you’ll never use these, it’s good insurance to have these relationships in place just in case.
Give the boss a break – All you can do without enough working capital is tread water
Many times, business owners make poor cash flow decisions because there just isn’t enough working capital to properly run the business. Scraping to make ends meet is just as stressful to a business owner as it is to a family – except a business owner has 50 mouths to feed, not four.
Overstressed people make desperate decisions. If your company is trying to grow without enough working capital, keep this in mind as you make your day-to-day cash flow decisions. Remind yourself to think rationally, logically, and unemotionally.
What do you do when cash flow issues are keeping you up at night?
Let us know in the comment section below.
About Capital Solutions Bancorp
Capital Solutions Bancorp provides working capital funding to businesses just like yours every day. If your company needs working capital to grow, or if you’d like to have a backup plan in place for unexpected expenses, call Capital Solutions Bancorp today at 800-499-6179 or visit us online at www.capitalsolutionsbancorp.com.