Cash Flow Keeping You Up at Night?

Cash. Flow. Did you get a pit in your stomach? There are few things that can be such a source of elation, stress, and nerves all at once like cash flow. There are ways touse this tool to your advantage – whether you have a roaring river or a trickle. Either way, there are valuable lessons that come from learning how, and when, to properly manage cash flow. 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 swallow because, seriously, who wants to claim their money mistakes as a behavior problem? This philosophy is true in business, too, and I’ve seen it reinforced in every company I’ve had. When cash flow isn’t flowing and it’s not due to sales, it’s a management problem. It sounds simplistic, but honestly, cash flow really is. The first issue is knowing where your cash needs to go and start with the 80% rule. Where does 80% of your cash go? Is it all necessary? Review your spending habits and create a budget from what you are spending – knowing where you are is the first step to getting where you need to go.

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, you pay off all your vendors and you even give some employee bonuses. That may be great for morale, but then next month… what will be left? My finance team uses tools to map out our biggest buys and uses an annual and quarterly budget. We reevaluate often and track cash flow weekly.

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 upon, and not a day earlier. 

People Management

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

Let’s say you have to pay $100K in bills next month and you expect to bring in $150K in revenue. Not too shabby, right? What about that vendor that forgot to bill you for work done or your laptop takes a header off of your countertop workspace, or your month-to-month lease is now in commit-or-bust mode? 

Suddenly, that gap you had has closed. This is why it’s imperative 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 havoc will strike. One thing that makes me so proud of my team is how excited they are when they find discounts or negotiate pricing and/or terms to help manage the company’s finances. That’s true ownership!

Cash flow problems can 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 get in a pickle again. The relief you’ll feel will be almost as good as a bursting piggy bank.