
How Can I Tell If I’m Going to Run Out of Business Cash?
At its most basic, the cash flow formula calculates what's left over after you subtract all your expenses from all your revenues.
If your business bank account has insufficient funds and you’ve opted out of overdraft protection, a check written from your business account is returned unpaid to that original account. The financial institution will then charge your business a fee for having written that check from an account that did not have the appropriate funds. Any other transactions will also get declined, meaning you cannot move forward with the purchase.
Many people don’t want to endure the embarrassment of a declined transaction due to insufficient funds in their bank account. Banks realized this, and they’ve developed a fee structure to help customers and businesses avoid that situation.
The fee structure for overdrawn accounts is comprised of the two most commonly charged banking fees: the overdraft fee and the non-sufficient funds fee (NSF). Although these fees may seem similar and many financial institutions treat them nearly the same, there is a small difference.
An overdraft fee is charged when an account lacks the funds to pay a debit against it, and the financial institution covers the overdraft. The NSF fee is similar in the sense that it comes when your account is overextended — but the debit is not paid with the NSF (like it would be with overdrafting).
There are a few paths you can take when your business account has insufficient funds.
As a small business owner, it can sometimes be challenging to avoid this “insufficient funds” situation. You have money going out to pay employees, rent and office supplies…but sometimes the money coming in doesn’t always arrive when anticipated. So how can you manage your business accounts to avoid both embarrassing situations and paying unnecessary fees?
Having insufficient funds in your business bank account is not an ideal experience. But with proper account management, the NSF alert and fees can be avoided altogether. Many of these tips don’t take much time to implement, and they can quickly become a financial routine that will help strengthen your business’ finances over time.
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At its most basic, the cash flow formula calculates what's left over after you subtract all your expenses from all your revenues.
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