Cash is King

Generating revenues costs money. Understanding and anticipating the cash flowing into and out of your business is critical to ensuring that you have enough cash available to meet current and future obligations. If your business does not collect cash immediately upon making a sale, you need to know when you expect to receive that money and how you plan to cover expenses until that check arrives.

Some businesses may not receive payment until 30 or 60 days after a sale is made. During that time, rent, utilities, vendors, and employees must all be paid. You must have a plan in place to be able to meet those obligations while you await payment. You may need to delay making an investment in new equipment to ensure that you can cover employee salaries, or you might need a short-term injection of cash to cover a gap.

There are several effective—and free—cash flow projection tools available for your use. In order to make your projections as useful as possible, you must understand the timing of cash entering and leaving your business. Do you pay your bills upon receipt or do vendors have invoicing terms enabling you to delay payment for 30 days? How long does it take an average customer to pay for your products or services? Remember that your “average” customer may pay you 10 days after a sale, but some may not pay for 30 days, 60 days, or more (or ever). Take this variability into account when making your projections.

Effective cash flow projections will help your business overcome the problem that shuts down more businesses than it should. Understanding your cash flow will ensure that you have enough money on hand when unexpected expenses—or opportunities—arise.

For free assistance with your cash flow projections, contact your local Small Business Development Center (SBDC) or Service Corps of Retired Executives (SCORE) chapter.

Sources, additional information, and tools are available through the following resources:

Content contributed by Ryan Pingel, State of Ingenuity SourceLink (Wisconsin/Illinois).  State of Ingenuity SourceLink is a proud affiliate of U.S. SourceLink, America’s largest resource network for entrepreneurs.

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