Cash Flow Headaches and Mistakes to Avoid

Most small business owners are all too familiar with the stress and headaches of managing cash flow. Clients pay late, payroll falls on a weekend, annual payments hit all in the same month, and supplier payments are due before the sales occur. It’s a never-ending ebb and flow. You’re in it for a reason like wanting to make the world better with your products or services, or it is a labor of love, but in times like these, you’d rather be at the beach watching the tide ebb and flow instead. 

An article in Entrepreneur magazine lists the 5 Worst Cash-Flow Mistakes Small-Business Owners Make as:

  1. Overestimating future sales volumes
  2. Engaging in impulse spending during the startup phase
  3. Being passive about past-due receivables
  4. Not using a cash-flow budget
  5. Not keeping a cushion of cash on hand

This is a helpful list but avoiding the mistake #4 Not Using a Cash-Flow Budget takes more than discipline and restraint. Who has time the time to prepare the cash-flow budget let alone monitor and update it? 

Monitoring Cash Flows

A cash-flow budget is an estimate of all cash receipts and cash expenditures that are expected to occur during a certain time period. A good cash-flow budget will cover cash needs on daily, weekly, monthly, annually, and/or multi-year basis. It’s use can eliminate at least one of the headaches and avoid heart-sinking surprises if used carefully. However, a cash-flow budget is only as good as the data you input. 

In order to predict your cash in-flows and out-flows, it’s important to have timely and accurate bookkeeping reports. Equally important is historical data and knowledge, due dates of annual expenses, supply lead times, and length of the sales cycle for example. Out of necessity, many entrepreneurs have an uncanny ability to keep a “back of the envelope” cash-flow picture in their head but it more likely adds to the everyday stresses of managing the business. What did I forget? What new bill did the mail bring today? Oops, I forgot that Franchise Tax was due this month! If your accounting team consists of you, yourself, and I, maybe it’s time to get some help.

Revenue is Not Cash!

Your demand engine is humming, sales are booming, or there’s a line out your door. Sounds great right? How are supplies? Maybe you finally qualify for a volume discount or have an opportunity to save big by converting a monthly subscription to annual, but find out you don’t have the cash or credit to take advantage of it. Your profit and loss statement looks great, so where’s the cash?! 

Revenue is measured on an accrual basis meaning the sales are recorded as soon as the transaction takes place. If you have accounts receivable or accept credit cards or payment plans, the cash does not change hands as soon as the transaction occurs. The revenue on your P&L is a great indicator of how successful your sales and marketing are, but not a good indicator of cash on-hand.

How Tentho Can Help You Manage Cash Flow

Tentho specializes in helping small and mid-sized businesses with their finances. A team of highly qualified, dedicated professionals are able to help SMB’s with bookkeeping, accounting, and all things finance so you can focus on the business. Tentho has a wealth of knowledge and CFO’s to offer their services to pair with your executive team to create a strategy towards success and profitability. From fractional CFO services to elite accounting membership packages, Tentho offers a wide variety of services tailored to the specific needs of SMBs. If you are ready for a dedicated financial team on your team, schedule your free consultation to learn more so you can focus on what you do best.

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