I am no stranger to businesses with cash flow problems. The lack of cash to pay the bills is pretty common among small businesses. It’s no secret why it happens… promises haven’t been kept by customers, you expected sales that didn’t materialize, you expected funding that didn’t come in, the list goes on. What I find most often is business owners don’t know what to do when it happens to them. Here’s my advice:
1) Figure out what went wrong and take steps to fix the problem or at least limit the impact. This is easier said than done and you might need some outside advice to help you figure it out. Here are some things every business should do:
- Review your budget vs actual report – is anything out of line? (If you don’t have a budget, you need to get one. Budgets help you keep things under control and see when they aren’t)
- Review your trends – Look at your operating cash flow ratio, debt to equity, etc. What’s the trend? Is this a one month blip or has your problem been brewing for a while? (note, your financials must be accurate or your ratios mean nothing)
- Build a cash flow report. I like to use 2 cash flow reports. The first is a high level cash flow that turns the budget into a cash flow forecast so you can see potential problems with your budget and figure out how to make your plans work well in advance. The 2nd is the one you’ll need immediately. It’s a very tactical report that details out what you’re expecting in receivables over the next 4 to 8 weeks (as far out as you can accurately predict) and the bills you’ll need to pay.
