Cash Flow Best Practices

Cash flow. It’s the enemy of many small businesses. It attacks in so many different ways, and when it goes unmanaged, cash flow problems can take your business down in a flash. As a bank that’s fought in its fair share of financial battles alongside small businesses across the country, we know what it takes to overcome a cash flow crunch. Here are our best tips to help you come away unscathed:

Learn to recognize trouble when you see it

Widespread industry and economic trends, seasonal lulls, unexpected major expenses, too-rapid growth, gaps between orders being placed and receipt of payment — these are some of the major factors contributing to cash flow problems. Use your spidey senses to snuff out these problems before they get out of hand and respond when you see anything that could be concerning. Don’t let cash flow problems linger.

Know your enemy

When you find yourself in the midst of a cash flow crisis, make sure you keep a close eye on your cash flow, especially at the beginning and end of each month. Understanding the opponent and what you’re dealing with is half the battle.

Plan your attack

Create a 13-week plan to help you stay focused and create a clear picture of what’s coming in, what’s going out and what you need to do about it. Create a spread sheet to track income and debts on a weekly basis and update it every week. Keep your creditors in the loop on your plan as well to ease their minds and let them know what to expect from you as far as repayment goes.

Pick your fights

Prioritize your debt by necessity. What’s an absolute must-have for your business? What’s the thing that you can’t survive without? Make sure to pay that invoice first so you can stay on your feet. Then work toward paying less critical ones next — and so on and so forth on down the line. If you’re fighting all the opponents at once, the odds will quickly stack up against you.

Stick to your scruples

In the midst of a cash flow crisis when you can’t pay all your bills, it’s inevitable that creditors and bill collectors will come looking for you, and they may not be happy. But don’t let yourself be intimidated or alter your plans based on who’s barking the loudest or demanding the most. Stay the course and focus on your priorities, not theirs.

Use your words

Try to work with your creditors and see if you can work out a mutually beneficial arrangement for both of you. They don’t want to see you reach bankruptcy just as much as you don’t because that means they’ll likely only get pennies on the dollar for what you owe them. Try offering to pay in full for the current day’s delivery along with a percentage for the amount owed, with 1–10% per order to start negotiations.

Don’t let the IRS become a villain

Skipping out on payroll taxes is never a good idea. The IRS can and will come after you, and it can easily lead to your business shutting down for good, hurting your employees and opening you to significant personal liability. Filing form 941 keeps the IRS from becoming the formidable foe it can be.

Never duck and run

It’s a natural inclination for many businesses to avoid calls from creditors when they’re experiencing a cash flow crisis. The problem is, putting off the confrontation won’t make it go away, and will likely upset your creditors and make things worse in the end. Instead, keep an open line of communication with them so you can stay in their good graces and give you an opportunity to negotiate and continue working with them in the future.

Find a financial sidekick

Enlisting the help of a CFO or financial expert who knows how to navigate a financial crisis can give you the help and guidance you need to get the upper hand in your financial fight. Everything you’ve read above is something any smart CFO will be capable of helping you with.