How to get rid of business cash flow nightmares once and for all

Two words can spark dread in the minds of business owners everywhere: cash flow. Of course, entrepreneurs can encounter plenty of financial pitfalls when growing a business, but this is one of the most frustrating. Often, you have enough revenue to more than cover your accounts payable, yet you might end up overdrawing your accounts or getting collections notices because the timing is all wrong. Luckily, you can fix these issues for good. Here’s how.

Behavior management 

Financial expert Dave Ramsey is known for saying personal finance is 80% behavior, 20% head knowledge. This can be an unpopular adage to accept because, seriously, who wants to claim their money mistakes as a behavior problem? I get it. But this philosophy is true in business, too, and I’ve seen it reinforced in every company I’ve had. When you run out of cash to pay your bills (and it’s not due to a lack of sales), it’s a management problem. You spent too much, too soon — and now you don’t have the funds to cover what you need to cover.

It sounds simplistic, but honestly, cash flow really is. Review your bank statements, old school, like you did when you were learning to budget your income. Highlight the biggest expenses, and focus on the time frame in which you came up short. Your goal is to figure out the reason. Did you buy new equipment earlier than necessary because you thought you had the funds? Did you forget to stick to your budget?

Once you find out why this is happening to you over and over again, you’ll see a pattern in your mindset (which dictates your behavior). Loop in a trusted partner or colleague, and share this problem; then ask them to keep you accountable. Even just running large purchases by one other person on your team can help you pump the brakes and make wiser choices.

Timing management

Part and parcel with behavior is timing management. One of the biggest mistakes I see business owners make is trying to get ahead financially and then having it come back to haunt them. For example, your biggest customer pays you a lump sum for work that will be ongoing over the next few months. Instead of budgeting that out and making sure you have equal amounts left over for those remaining months, you start envisioning all you can pay off right now. So you make a huge payment on your line of credit, pay off all your vendors and give some employee bonuses. That may be great for morale, but what is left for next month?

Create an allocated spending plan to go along with your budget. This helps you map out when accounts payable are due and when you expect to bring in your accounts receivable. You can look ahead and project when money might get sticky and also see when you may have a surplus that you could put aside for those stickier times. One tip that helped me is to pay according to payment terms, and not any sooner. Even though it feels really good to get a person or organization paid early, it can get you into trouble if your own customers pay late. So keep to the payment terms you’ve agreed on, and don’t pay a day earlier.

People management

Managing your own behavior and how you’re handling the timing of your cash flow requires you to take a good, hard look at yourself and your own actions. This is always the best first step for a leader and the area in which you can make the most change. But I’d be remiss not to mention that partners and team members can also create cash flow issues.

Let’s say you have to pay $100,000 in bills next month, and you expect to bring in $150,000 in revenue. Not too shabby, right? Well, then let’s say your CMO booked expensive travel for several people on the company card, your VP of sales treated the entire company to a fancy catered lunch and your office manager forgot to remind you that one of the machines needed to manufacture your main product needs to be replaced.

Suddenly, that gap you had has closed, and you can’t cover what you need to. While you may have been able to manage one of those three things, you can’t cover all of them at the same time. This is why it’s imperative that you always leave a buffer for unexpected expenses (especially for mission-critical equipment and systems), and you train your team on how to properly use company finances. These two areas cannot be overlooked, or they will wreak havoc on your bottom line.

Cash flow problems are enough to keep a business owner’s stomach in knots and leave you with a string of sleepless nights — but it doesn’t have to be this way. You can decide to take control of your company’s finances, just as you would your personal finances, and make changes around behavior, timing, planning and your people to ensure you don’t land in hot water again. The relief you’ll feel will be even better than the feeling of a full bank account (that said, the two together are magic).

The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Jay Feitlinger is the Founder + CEO of StringCan Interactive, a digital marketing agency focusing on growth-seeking businesses launched in 2010 in Scottsdale, Arizona.