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Cash Flow – Where’d My Money Go?

One of the main reasons small businesses fail is not lack of business but problems with cash flow management. A business may show a profit each year, as far as their tax return goes. However, if they spend that and more, they will always be crunched for cash.

A good cash flow spreadsheet can help a business owner decide if they really have the need or ability to take on another large purchase or hire another person. They can run the “what if” scenarios before they happen and decide if the benefits outweigh the risk.

For starters, ask these questions:

  • Is this new expense really worth it?
  • Will adding this employee give me back the time I need to market and get new customers?
  • Will this result in a net increase in money flowing in?
  • What if I take out a loan or increase my payroll obligations and my income suddenly drops 50%? Not so hard to imagine these days!
  • How many months of cash reserves do I have to keep paying my obligations until things turn around?
  • Will two months of bad business leave me considering bankruptcy?

Ask the same questions for a new vehicle or other machinery:

  • Is this essential for making or saving money and time?
  • Or, is it just a nice-to-have?

These are not easy things to contemplate. However, they are a heck of a lot easier to think about on paper first, instead of in hindsight.

In today’s conditions, a cash flow analysis might run like this:

  • What happens if the business stays this bad for 3 months? For 6 months?
  • What if I reduce payroll by half?
  • What if I keep payroll the same for the sake of my employees but defer a loan payment?
  • What if I start a side gig of curbside service or mail order?

What about an SBA loan?

By the way, those SBA loans can take months to process. Start the application now. Of course, you don’t have to take the money if approved but don’t need it!

To help struggling businesses during this COVID-19 situation, I am offering a free 30-minute Zoom conference and spreadsheet to get you started on managing cash flow better. Email [email protected] to schedule a time!

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