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Pay Your Bills

Learn what accounts payable is and how to manage it

Pay Employees and Benefits

Here’s how to consider the real cost of employees

Manage Business Debt

Staying on top of money you owe to keep interest/fees down

Cover Office Space Utilities

The biggest expenses in your business are likely to be office rental and utility bills

Explore Content to Better Manage Your Cash

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By kostandina

Warning Signs You’ve Got Cash Flow Problems

Understanding the warning signs of a potential lack of cash within your business is imperative to solving the problem. There are a few key symptoms to be aware of when monitoring your businesses cash flow.

Lowered Profit Margin

If you are profitable, your profit margin is shown as making a certain number of cents per dollar of products sold. As you upgrade products, add new products or increase distribution channels, you may incur new costs to produce your product. If this isn’t reflected in the prices of your products, your profit margin will decrease — meaning you will make fewer cents per every dollar sold. This will lower your bottom line profitability and make less cash available.

Declining Sales & Growth

This might be obvious, but a healthy business should be a growing business. While many businesses view stagnant growth as a sign of health just because your sales are not declining, it doesn’t mean you’re not in danger of running out of cash.

Negative Cash Flow

Your business may be profitable, but that doesn’t necessarily mean you have a positive cash flow. If you are making significant investments larger than the amount of cash you are generating from your profit, you will eventually outspend your cash on hand. This will quickly cause your business to run out of cash.

What to Do If You’re Running Out of Cash

Running out of cash for your business is a fear of every business owner. There are many reasons why a business may run low on cash, but there also proactive steps you can take to get your business back on the right track. Before implementing any of these tactics, you’ll want to understand how much runway (cash) you have left if things do not improve. This way, you’ll know how long you can sustain your business even if nothing changes.

Cut Down Your Current Costs

The first thing you need to do is make a note of every expense your business is incurring. You need to understand where every single dollar is going. Once you have that understanding, go through and make a note of those that are not core to the everyday operation of the business. Those are the expenses you want to cut. Try aiming for at least a 25 percent cost reduction; the more, the better.

This can be done on a regular basis each month. Keep analyzing your overall costs to see where you can eliminate and reduce your expenses.

Negotiate Rent

If you are renting the space where you operate your business, have a meeting with your landlord and see if you can put off paying rent for a few months. If you go to your landlord proactively and explain your business situation, they may be willing to cut you a break since finding new tenants can be difficult. The worst case scenario is that they say no, but they may be willing to find another way to work with you during this tough time.

Vendor Analysis

Similar to the chat you had with your landlord, you can have that same conversation with your vendors. While they may not be able to help you with a free solution, there may be a creative way they can structure your payments that better suits your financial situation in the short term.

You can also start to do some research on competitive vendors, contact them, and tell them that you are considering switching services. You may be able to negotiate some free months or a lower monthly cost for the specific service.

Eliminate Staff

This is, unfortunately, the quickest way to cut costs. Having employees is one of the largest expenses for a business, and the amount of runway you have left will determine the number of employees that need to be let go. You can start by cutting non-essential staff like your administrative team. Another option here is to see if they could work for you part-time until your financial situation improves.

You can also look at any employees you have with high salaries. Doing a quick scan of the job market in your area may reveal that you can hire someone from the outside to do their job for less money.

Get a Business Loan

Another option to help close your cash flow gaps is a business loan. This loan will help temporarily ease the financial burden on your business. One thing to keep in mind with your business loan is that you should be in a stable enough financial position to make your regular loan repayments. If you fail to make on-time payments, this will negatively impact your business credit score and hurt your chances for future business loans. Some of these steps may be uncomfortable, but they are necessary to get your business back on the right track. The overall goal is to get your business into a stronger financial situation, so these measures will be beneficial in the end.

Get Business Financing Now

Know Your ‘Zero Cash Date’

Your zero cash date is the estimated date that your business will be out of money at your current burn rate. If your business isn’t regularly cash flow positive, it’s important to track this metric. As you continue to do business and become more operationally efficient, your zero cash date should move further out in time.

To track your business’ zero cash date, take the cash you have on hand and compare it to your overall expenses per month. You’ll divide the available cash by your total monthly expenses to determine how many months you have left and when exactly your zero cash date is.

How to Protect Your Business & Never Run Out of Cash

Making sure your business always has enough cash on hand is vital to its success. There are many ways to ensure that your business doesn’t run out of cash.

Diversify Your Customers

If possible, try to make sure that no single customer is responsible for more than 50 percent of your revenue. While this may be difficult for certain businesses, it’s important: if that client leaves your business, you will lose a significant amount of revenue.

Control Your Invoices

If your business is billed via invoice, make sure the invoices you have outstanding are minimal. Monitoring your overdue payments is essential. For businesses that rely on on-time payments to sustain their operation, it’s important that invoices get paid on time.

Be Vigilant on Payment Terms

Your business can determine the payment terms of your invoices. For smaller businesses who have limited capital, it’s important to get paid regularly. Try to aim for no longer than 60-day payment terms; ideally, you would want 30 days. This will keep cash flowing through your business on a regular basis.

Utilize Your Vendors

The vendors that you have a long-term relationship with may be willing to offer you longer payment terms. You can take advantage of these to keep your cash flow positive and keep more cash in the bank. In every business, running out of cash is a real fear. As your company’s revenue grows, so do your expenses. Staying on top of your financial situation is the best way to ensure you never run out of cash. If a situation arises where you are running out of cash, the tactics above will help put your business back on track.