Every smart business owner keeps an eye on profit numbers. But profit alone won’t make a business successful. A profitable business can experience bankruptcy if it doesn’t manage cash flow well. 

Mike Periu, a Fellow at the Kauffman Foundation’s Labs for Enterprise Creation and on the Board of Directors of the Council for Economic Education, recently had an article published on the American Express OPEN Forum discussing this issue. He suggested the following helpful steps to prevent problems.

  1. Keep at least 90 days of operating expenses available in cash. If your clients wait 90 days to pay their invoices, your bills won’t wait along with them. Play it safe and keep a 90-day cushion available.
  2. Secure revolving lines of credit. Revolving lines of credit are essentially credit cards for companies issued by financial institutions. It’s best to apply for revolving lines of credit when you don’t need them. If you wait until you’re desperate, you may be turned down.
  3. Delay paying your bills until you absolutely must. Ask for extended terms from your providers.
  4. Analyze cash flow for each customer. Figure out which clients are generating a negative cash flow, and talk with them to negotiate earlier payment. If those customers won’t agree to negotiate, tell them you’ll need to charge them for the financing costs associated with their cash flow imbalance.
  5. Set up alerts. Cash flow needs to be monitored daily. Use automated alerts to remind you to review your cash balances as a part of your daily routine.

Profit is essential, but not enough to make a business successful. Following these steps will help ensure that your business doesn’t fail due to cash flow problems.

If you have questions about cash flow issues in your business, I’d be happy to chat with you. Just give me a call at (864) 836-3136.