Smooth Sailing

A cash flow crunch could cause a wave of problems for your business. Making finances a top priority will help to ensure that you don’t capsize. By Lynn Celmer


Given the troubled economy, it’s not surprising that many small business owners are experiencing cash flow problems. What is surprising, however, is how few business owners actually make cash flow a priority.

The fact is, it is critical for small business owners to maintain their cash flow, according to Rusty Luhring, founder and CEO of Luhring SurvivalWare. “It’s not about greed or trying to grow rich,” he said. “Cash is the lifeblood of any business. If you run out of cash, you can’t keep the doors open.”

Luhring added that keeping good financial records is crucial to preventing a cash flow crisis in your business. “I have a business partner who refers to it as washing the dishes,” Luhring said. “You either do it yourself or you hire someone to do it; just make sure it gets done. If you don’t have good records, you’re really hard-pressed to make the right decisions.”

Area Director of the University of Georgia Small Business Development Center, Lori Auten agrees. “Many business owners that I’ve seen don’t really enjoy the accounting and the record keeping part of the business. They enjoy the people part of the business. They enjoy the craft or the skill of it. If you don’t enjoy that, then you need to invest in someone that will do it for you. Once it becomes a little bit of a pressure point, that’s when business owners say to themselves ‘I’ll handle it tomorrow’ and then they never get to it. It’s kind of like we can be our own worst enemies.”

If you start to sense financial trouble, there are several things that you can do, according to Julie Lenzer Kirk, a former tech entrepreneur turned lecturer and consultant.

“First off, they should take an inventory of where they are at and look at how they can stop the bleed,” she said. “Start calling people to get payments they owe you and follow up on those calls. I know some business owners who forget to invoice. They just get so busy. Make sure that you’ve invoiced everything that you’ve worked for. You can even renegotiate a payment plan with your lawyer or your accountant. A lot of times if you call and ask them, they can work something out. You can also see if your vendors can help finance you. Most people are afraid to ask for things, but what have you got to lose?”

Instead of relying on credit cards, there are plenty of ways to cut cash when times are hard, Lenzer Kirk added.

“Try and barter your skills or services to get other services that you need,” she said. “I know I’ve done some consulting work in exchange for help with my website. You need to be thinking about how you can provide them something of value to get something that you need. I tend to look at my largest expenses. While things like reusing paper all helps in the end, I usually watch bigger things like my rent. I was able to go back and renegotiate my lease. Think lean. Bring your lunch to work. At the end of the day, your business finances are pretty aligned with your personal finances and anything that you can do to help your personal situation will help your business situation.”

Auten believes that business owners should analyze and look at what kind of debt their business has. “If you have a lot of credit card debt, you might look to consolidate,” she said. “You want to work to eliminate the short-term, high interest type of debt. You can also look at the prices that you are getting from your vendors and suppliers. Are you getting the best prices that you can? Sometimes you can work with banks or debtors and adjust the terms of a loan, particularly with an SBA loan when you see that things are getting a little bit tight. In some cases, depending on your situation, the bank will sometimes redo your loan and may work with you interest only for a while, but that is strictly on an individual basis. You don’t know until you speak to the people that you owe money to. It’s better to let banks and creditors know ahead of time before it’s too late.”

There are some questions that business owners need to ask themselves to help identify if they have potential cash flow problems looming.

“One of the questions to ask is have you sweated making a payroll recently?” Luhring said. “Another thing to look at is are you behind in paying your payroll withholding taxes with the government and how quickly are you paying your bills? That’s why it’s so important to have good financial records. I’ve seen cases where a business owner thought everything was fine, but the person paying the bills would just hold onto them. It wasn’t evident to the business owner that they were paying things late.”

Luhring added that business owners should put together a cash flow budget as needed. “I’d say if a business owner is in the middle of an extended cash crunch, then doing it every six weeks would be sufficient,” Luhring said. “It’s not really necessary to do it when you’ve got lots of cash in the bank. If you notice some of the danger signs, then you might want to do it every six weeks until you don’t have to worry so much.”

Business owners need to make sure they understand what the big picture is, according to Lenzer Kirk. “One of the things that can slip us up is our insurance,” she said. “We oftentimes forget that we pay it as a quarterly bill every September. Business owners get so embroiled in day-to-day operations that they need to just take at least half a day once a month to understand where they are and what they have coming up. I think if at all possible they should have a buffer of operating costs. Meaning they should have at least 3 months of operating expenses in cash.”

Experiencing a cash flow crunch doesn’t have to be painful. Stay calm, take a deep breath and take things one day at a time. The better able you are to anticipate a cash flow crunch ahead of time, the better able you will be to avert a major crisis.

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