Small Biz Tip: When Projecting Small Business Cash Flow, Always Have a Plan.

Cash flow can make or break a small business's health. More often than not, maintaining it is a balancing act between credit and cash on hand, and it's a tricky tightrope to walk. As your business begins to grow, this intricate balance has the potential to become even more complicated. Especially if you're relying on big clients or irregular payment cycles, your cash flow can become unpredictable. As the numbers grow, so do the stakes and the best possible asset you can have is a plan.

With a proper accounting of all your possible expenses throughout the year, coupled with your anticipated revenues, it's possible to project how much cash will go in and out of your business on a day-to-day or week-to-week basis for the next year.

Several templates for cash flow planning are available online, but you can easily make your own. To prepare your own cash flow forecast, begin by projecting cash inflows, being sure to base your numbers on when the cash will reach your business, as opposed to, for example, counting a customer's credit card payment the day of the sale. Then, include all expense variables for the same time period. Finally, add the projected bank account balance at the beginning and end of all of those transactions.

The result should be a clear picture of how much cash will enter and exit your business during any given time period. A good cash flow projection can help a small-business owner know when to make major purchases, when to set funds aside, and, in general, how to keep a healthy amount of cash flowing through the business at all times.

Cash shortfalls happen. The month you need to pay out for a ton of new inventory could be a naturally slow month for revenue; the need for major repair work could fall in the same month half of your employees worked overtime. Whether they are due to a slow season, lagging client payments or unanticipated expenses, cash shortfalls are survivable if small businesses look ahead and act early.

When assessing how to fund growth, it's essential to calculate how much debt you're already carrying, and your comfort level adding to that debt. If you have sizable debt, additional borrowing could have a negative impact on your credit rating, which is never a good position for a small business. And your ability to secure a loan and get favorable terms will be partly dependent on existing debt as well as other elements of your financial and business profile. If you're carrying a manageable amount of debt and can secure a loan or line of credit at competitive rates, then credit may be the best option. However, if your debt level makes you or your lender uncomfortable, then perhaps establishing the discipline of using cash to methodically fund growth of your business could make the most sense.

The old adage “cash is king" still carries weight when it comes to effectively operating and growing a small business. It's essential to maintain operating cash to fund the daily operations of your business, but cash reserves beyond that can be viewed as capital that can be used to fund growth or reinvestment in the business. Before even entertaining the question of cash versus credit, you should make sure you have a clear picture of what operating cash you need to comfortably run the business.

Cash flow is the lifeblood of small businesses, but sometimes due to slow receivables or unforeseen circumstances, small business owners find themselves in a cash crunch. Being short of cash can be frustrating, stressful and disappointing, but with a bit of adaptability and careful planning, you can use this cash crunch as a learning experience to strengthen your small business's finances for the future.