It’s the one thing that can single handedly make or break your business. If you are a small business owner and you’re funding your business with your capital, you’ll walk away from it unless you find someone else to help support it. New startups run negative in the first three years and close in the first three years. But if you pay attention to your bottom line, you can ensure that your business stays open. It takes time to build a business, but if it’s been 5 or 8 years, it will begin to wear on you.
Poor cash flow management will go on in a business for years and people will keep the business open. However, they may complain that their company doesn’t make enough money. Distinguish between whether your business is making money but having a cash flow issue, or whether it just isn't making money.
Does your business fall under one of these three:
- It doesn’t make enough money to support itself as a business.
- It doesn’t make enough money to support itself and pay your salary.
- It makes enough money, but it constantly feels like you’re always behind on bills, that your profits are going out of the window, but it actually is making enough.
Figure out if your company is going into debt or are you personally going into debt. Is your business isn’t making enough to support its own expenses? Are you pulling money out, and putting money in? How much has it paid you vs how much you’ve put in during the year? Including your salary, is it making enough to cover its expenses?
If you’re putting money in and pulling money out, but pulling more out than you’re getting in, the company is making enough to cover expenses but not enough to cover you and the expenses. If you are putting money in and pulling money out and your business and personal expenses are being paid, then you have a cash flow problem. You are probably building debt or draining your savings.
My advice is for you to take a look at all of your accounts, biz, personal, savings, credit cards from this year and last year. If you have less in your accounts this year than last year, you’re going into the negative. If the net worth is about the same, you may feel like you’re scrimping and pinching pennies, but the good news is all you have is a cash flow management problem.
Here's the solution; cash flow is an income and expense problem. Most companies don’t make a steady income. Is your business seasonal? IF you run a business where your income is seasonal, say the holidays are when you make the bulk of your money or the summer is when your business is booming, take an average of the entire year. Write down each bill and when it’s due; write monthly bills and unusual bills. Match your bills with your income flow, and simply change when the bills are due and change when you do your billing. This will help you to better manage your money for the entire year.