Cash Flow Is the Lifeblood of Your Business. Keep It Healthy.
When I ask designers what they think they need to run a successful business, they almost always say more clients or better projects. Rarely do they mention help managing their finances. Yet, eight out of ten small businesses run into trouble or fail because of poor cash flow management. That’s right; it’s not because they are not attracting enough business. It’s because they are not managing their money well.
According to a 2019 survey conducted by Intuit, the maker of QuickBooks, six in ten small business owners regularly struggle with cash flow issues. As a consequence, nearly a third have problems paying vendors, loans, their employees, and themselves. In many cases the reason is not due to external circumstances but to poor cash flow management. That is something you can control.
The Intuit survey also identified common reasons why small businesses run into cash flow problems. These include not having sufficient cash reserves to cover lags in revenue, expensive borrowing (e.g., using credit cards to pay debts or vendors, taking out high-interest business loans), outstanding receivables (i.e., failing to get customers to pay invoices on time), not charging enough for goods or services, unnecessary expenses that do not contribute to profitability, lack of planning and forecasting to anticipate ebbs and flows in revenues, poor budgeting, and trying to grow the business too fast. Do any of those sound familiar?
If you currently struggle with cash flow problems, there are immediate steps you can take to get your business back on track. Go after later-paying customers to collect outstanding receivables and/or work out a payment schedule. Talk with vendors and lenders to discuss options for reducing or delaying obligations. Reduce expenses where possible. Apply for a low-cost small business loan and/or a business line of credit with your bank. Sell off items you have in storage that you don’t currently have a committed client.
These are only temporary solutions, however. For the long-term health of your business, you need to acquire the knowledge and skills to manage your business’ finances properly. Otherwise, before you know it, you’ll have the same cash flow problems all over again.