Surprises by definition aren’t things you think would happen. I love being surprised when it’s my birthday or even a random Wednesday, but its never a good thing to be surprised by a sudden cash flow problem in your business.
Part of not being surprised is knowing what can potentially happen. Here are a few of the top ways small business owners get caught off guard.
- The difference between paper profit and cash – Outflows happen fast, while inflows take time. The balance of spending and collections is a delicate one that puts small business owners in a short-term cash flow crisis real fast. Only the owner can solve this problem by matching their spending with cash coming in.
- The “oh no” expenses – Life doesn’t always follow your excel spreadsheet plan. Equipment can break down, a natural disaster can hit, or you lose that big customer. Having cash on hand, can help make these times a lot easier to handle.
- You can grow broke - Yep this is a big one. You are actually successful, but can’t keep up with the orders because your clients pay on different terms than you do. This is managing your financial gap. Make sure to keep it small.
- Seasonality – When your business cycle is up and down, so is your spending on inventory or labor. Knowing that the dip or rise in the cycle is approaching can help you plan 60 days out to have enough of each.
- Not doing cash flow projections – seems obvious, but it is amazing how many people look to their bank account and guess about wat is happening in the next week in their business. You can’t predict everything with 100% accuracy, but you can identify problems sooner by being more methodical. And knowing your cash flow tomorrow, means that you can make smarter decision today.
Having a firm understanding of how cash moves through your company is a key component of running a successful business. Use CashFlowTool to stay on top of your game.