Small Business and Cash Flow Issues in 2023

I present part 3 of 3 key business skills: Finance, written by Corbin Cook, Virtual CFO & Exit Plan Advisor.

Small businesses can often struggle with cash flow issues. 

Managing both the incoming and outgoing funds is an important task that must be done carefully in order for business owners to remain profitable. Cash flow problems can arise from 

• too many payments coming due at once, 
• not enough available capital to cover expenses 
• or a lack of proper bookkeeping practices. 

Business finance in challenging times

During times when rates and inflation rise, the ability of business owners to maintain healthy profitability and cash flow becomes even more of a challenge. 

This is because the prices of goods increase, reducing the profitability of each sale. Additionally, loan payments and interest rates can also increase leading to higher costs for businesses. If a business does not have enough cash reserves to cover these costs, it could find itself in dire financial trouble very quickly. 

To prevent these issues, having a reliable cash flow system in place is key. 

You have options

Business owners should also consider strategies such as short-term lending or extending payment terms when needed. It’s also important to track all financials closely, maintaining records and reconciling accounts regularly. 

By taking proactive measures to keep their cash flow under control, small businesses can successfully weather the ups and downs of running a business.

What is cash flow management

Cash flow management involves three primary areas: 

1. tracking, 
2. understanding, and 
3. controlling. 

Tracking

Tracking your expenses and income is essential for getting a clear picture of the money coming in and out of your business. 

Understanding

Understanding the different sources of income and categories of expenses you have helps you better assess the impact of certain changes on your finances. 

Controlling

Finally, controlling cash flow starts with having a plan in place that covers all aspects of your financials. This includes budgeting, preparing for seasonal changes in cash flow levels, negotiating payment terms, and taking advantage of loan opportunities or other financing options when needed.

Have a plan

Controlling cash flow starts with having a plan in place that covers all aspects of your financials. Here are some specific strategies to consider:

1. Budget regularly and monitor spending closely.
2. Negotiate payment terms with clients and suppliers as much as possible.
3. Establish an emergency fund for unexpected expenses or seasonal cash flow fluctuations.
4. Prioritize payments so bills are paid on time and late fees can be avoided.
5. If necessary, borrow money from family or friends or look into other loan options like lines of credit, invoice financing, or business loans.
6. Use accounting software to make record-keeping more efficient and accurate, and reconcile accounts regularly to verify transactions included in your books match those in the bank statements.

What next

Taking control of your business cash flow is essential for success. By tracking, understanding, and controlling your business finances, you can improve the financial health of your business and make more informed decisions. However, it takes more than just knowing the basics – having a plan in place that takes into account seasonality, budgeting, and leveraging loan opportunities when necessary are all important strategies for controlling your cash flow. With the right resources and guidance, you can create a secure financial foundation for your long-term growth and success.