How to Manage Your Cash Flow When Money is Tight

Being strapped for cash in business can most definitely cause catastrophic failure, no cash = no business. Whether your business is going through a growth spurt, unexpected expenses have depleted your funds, or the market is taking a tumble, better cash flow management can stop the bleeding and help keep your business running like clockwork.

Know Your Flow

Knowing where, when, and how your money is moving can help you get a better handle on your business health. Each accounting period be sure to create a statement of cash flows, run this report more often when cash flow is especially tight. This statement should include, cash garnered from operations, cash resource allocation, and state of business assets. 

Closing the Gap

The gap of time between purchasing materials and collecting payment on a job is called "lag time." When money is tight, this gap between cash going out and coming in can cause some serious operational issues. Get intimate with the ins and outs of your business’ unique lag time. Making arraignments before you head into deep waters is essential. If necessary, speak to your customers about making some changes to their credit arrangements in order to get cash in when it is needed most. 

Know Your Weekly Cash Balance

Analyzing accounts receivable is important, but in most cases this account does not reflect you actual cash on hand. Accounts receivable takes into account both cash on hand as well as money that will be collected in the future. In order to determine your actual cash balance, make sure to reconcile your accounts often and make sure your calculations are accurate.

Find Out Where You Stand

Once you know your current cash balance, it’s time to begin forecasting. When money is tight your cash projection should reflect money that is already on hand vs. what will be going out this coming month. Run a report on unpaid bills and subtract this from your cash balance. Use past month reports to determine the percentage you should subtract for possible additional operations costs, taxes, and asset depreciation. Finding out where you stand means using the "worst case scenario" for you projection. When money is tight, the last thing you need is a "surprise" expense.

Cut the Fat

No one wants to cut back, especially during times of growth. But cutting out non-vital processes can help you reduce the cash hemorrhage. These cutbacks can sometime put you between a rock and a hard place for a period of time, but making the right choices when making cutbacks can mean company survival during tough times. 

Analyze Your Results

After a few weeks, check on your projection of cash flows. Checking your projection often can help you make necessary adjustments, help you find out if you are headed in the right direction, and give you an idea of what may be causing excessive losses. 

Your reports and projections can help your business make it through the toughest times. Accuracy and the ability to adapt your business quickly can ensure your survival. When your business is turning a good profit, try to still stay on top of your cash flows. Saving during prosperous times can help you keep your business afloat when you’re strapped for cash.


Image via: Universal Funding