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Even in a cash business cash can be tight

Even in a cash business, cash can be tight

It’s amazing how cash can slip through the fingers of even the most frugal small business owner. It just happens without you realizing it.


It can be the small things that creep up on you (growing expenses) or it can be the unexpected things such as equipment failures, unexpected repairs, employee turnover or even natural disasters.  Sometimes is happens so fast that you barely have time to react to the situation.  It’s not like anyone walks out the front door of their house and says, “I’m going to spend all the cash in my business, so I have to struggle to make payroll.”  For some business owners, they never have a cash problem, but for others it can be an ongoing struggle.


A common response is “that company is under-capitalized.”  Under-capitalization is one the prime contributing factors to bankruptcy and eventual closure. Even if you have profit listed in your income statement, you still might run out of money. The successful business owner knows this and builds a cash budget to help buffer against the times of year this may happen in his business.


A cash budget runs concurrent with your annual plan. Most small business owners will prepare some type of forecast of sales and expenses for the year, but fail to account for the time it takes for cash to be deposited in their bank account. This is especially important for companies that allow their customers to pay their invoices with credit terms. However, even cash businesses may have a collection lag to account for if they are running lean on cash. This happens when credit card receivables are not deposited until three days after the sale. The lag is short, but often noticeable by the small business owner trying to use the funds.


To build a cash budget, you need to fully understand your cash position, yesterday, today and tomorrow.   You must know your days cash on hand, your cash inflows and your cash outflows.   CashFlowTool’s calendar is a great way to identify the days when your bills are due and how much is needed to satisfy them. The calendar shows you the days that you are forecasted to have enough cash and the days where you will have a potential shortfall.   You can even set your CashFlowTool’s heatmap settings to an amount that is above zero to have a cushion and then drive to put that amount aside in the case of emergencies. 

You can also look at a number of cards in the dashboard to help you know what your current and projected cash status is including the Cash on hand, Days cash on hand, unexpected bills, Cash shortage, Monthly and Quarterly operating expenses.  It’s also helpful to understand the average days to collect from customers which measures how long it takes your customers to pay you.   You simply might be able to shorten up the time to collect so you have cash coming in sooner.

CashFlowTool can immediately show you all your vendors to ensure you know where all your outflows are going.   As your company grows, it’s harder and harder to keep control of your expenses.   Subscription services and vendors can add up quickly and with CashFlowTool, you can see each vendor, what you have paid in the past and what you are forecasted to pay in the future.  You can quickly view the interactive chart and search for outflows that you might not need and uncheck them to immediately see the impact on your cash.  You can see the results in both the interactive chart as well as the calendar.

Once you have both cash inflows and outflows fully understood, you should be able to clearly see any shortfalls. If you can see the time periods during the year that you may need money to meet your expenses, you can prepare for it. That is the key to having a healthy and sustainable small business. To see your cash today and tomorrow, try using the features in CashFlowTool mentioned in this blog.  Your business will thank you for it.



CashFlowTool is a product developed by Finagraph. We're a technology company that's passionate about helping small business owners, accountants, and lenders deeply understand the financial health of companies. Finagraph’s trusted technology helps power services provided by companies including Moody’s Analytics, Jack Henry & Associates and leading banks. Learn more

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