Small Business Tip: Pay Attention to Your Cash Flow

Even with the fanciest brand name, marketing gimmick, or the best tasting product, without a healthy flow of cash, no company can survive.  Having a solid cash flow is not just about managing a healthy business; it’s a matter of life or death for an organization.  Though it may sound extreme, small business owners must pay attention to their cash flows on a regular basis.  Why small businesses in particular? 

Imagine, for example, a large, stalwart 500 pound beast walking along a well-lit, fruitful jungle.  It is happy and satiated, until an unexpected and unprecedented ice age arrives. It must sustain life with much less food and shelter in the frigid environment.  Because of its sizeable build and capacity, however, the beast can go on for weeks, even months in the cold.  Now think of the same situation for a small 5 pound animal.  It would be lucky if it were to survive the first few days.  Similarly, many big organizations can power through several (though not perpetual) negative cash flow quarters because of their economies of scale.  They have bargaining powers and access to capital that are unavailable to small business owners.  For reasons of pure survival in economic downturns, adhering to your cash flow is important.  But there is more to cash flow than enduring difficult times.

Cash flow is also extremely important for times of growth.  Paradoxically, especially for small business owners, great opportunities can turn out to be disastrous occasions when cash flow is not carefully considered in advance.  This is especially true if your source of growth is coming from a business-to-business customer.  More sales posted to your accounts receivable (because most business customers will want to delay payment through invoices) while continuing to pay in advance for your costs, expenses, and inventory, can lead you into a deep dark hole of delinquency.  Before popping the cork of your champagne, you should diligently study your cash flow statement and cash cycles prior to committing to the opportunity. 

In order to deal with a shortfall of cash flow, a cash flow loan may be a viable option.  For this type of business financing, lenders provide you funds and use your future expected cash flow as collateral for the loan. You’re essentially borrowing from cash that you expect to receive in the future by giving the lender the rights to a predetermined amount of these receivables. 

Unless you can count toothpicks like Raymond in the “Rain Man,” it is essential to sit down and take the time to calculate or retrieve accurate accounting cash ratios for your business prior to undertaking a growth opportunity.  Too many intelligent owners make the mistake of visualizing cash flow or counting numbers in the head.  Learn about your quick ratios, current ratios, inventory turnovers, net working capital, and average payment days. Invest time and resources to build an accurate financial picture of your business, especially regarding your cash flow.  Then, look for capable and easy to work with small business lenders such as LVRG, that will help you sustainably reach your goals.  LVRG Funding is one of the nations largest and most trusted resources of cash flow loans, and we do so with speed and transparency.  Want to know if a cash flow loan is right for your business, give us a call (855) 998-5874. We're here to help!