SCORE

Does your business have the cash flow it needs? Some 37% of U.S. small and midsize businesses in the C2FO Working Capital Outlook Survey 2017 report their need for liquidity increased significantly in 2017 compared to the previous year, and 34% say it increased slightly.

That adds up to almost three-fourths of small and midsize businesses needing access to cash more than they did in 2016.

Cash flow from operations is the primary way U.S. small and midsize businesses in the survey finance themselves. If they had access to more cash flow, the majority would use it for growth.

Here’s what business owners in the survey say they would do with additional cash:

  • Purchase more inventory or equipment (33%)
  • Expand operations, such as exporting to new markets or opening new locations (28%)
  • Use it to meet current obligations (16%)
  • Invest in employees through hiring, wages and benefits (10%)
  • Invest in R&D (9%)
  • Create contingency plans to deal with unexpected events (4%)

Financing gets more costly

Small and midsize businesses in the survey report it was easier to access both traditional and alternative financing in 2017 than it was the previous year. Reflecting that, the number who used funding sources other than cash flow in 2017 grew by 40% in 2017 compared to 2016.

However, that doesn’t mean getting capital is easy. Not surprisingly, the smallest businesses—those with 10 or fewer employees—are less confident than the rest in their ability to access liquidity.

It’s not finding financing, but finding financing they can afford that’s the real challenge for the small and midsize businesses surveyed. More than 30% of survey respondents say high interest rates are keeping them from getting the capital they need.

Prevent cash flow problems

One cause of cash flow problems, especially for B2B businesses, is late-paying customers. Nearly one-fourth (24%) of U.S. companies in the survey say customers “often” pay invoices late—up from 2016. When you spend capital on inventory, materials and labor, invoice customers and then don’t get paid for months, you can easily find your business cash-poor though you’re busier than ever.

Managing your cash flow is key to avoiding a cash crunch.

These three simple steps will get your cash flow under control.

1. Cash flow statement. Begin by understanding what cash flow is. Your business’s cash flow statement records the money that comes in to your business each month (such as payments from customers, interest, loan proceeds, etc.) and flows out of your business each month (such as rent, payroll, utilities, etc.).

Your accounting software or SCORE mentor can help you create a cash flow statement. Once a month (or more often, if you’re in a cash crunch), review the statement to see how you’re doing.

2. Cash flow projection. Put together a cash flow projection. Kind of like a sales projection, this is done based on your previous cash flow statements. The more statements you have to work with, the better (ideally, you’ll have 12 months’ worth). Here’s a template you can use for a 12-week cash flow projection.  

3. Reality check. At month’s end, compare that month’s cash flow projections to your actual cash flow statement, and revise upcoming projections accordingly. Eventually, your forecasts will become more and more accurate, creating an early warning system of possible problems with liquidity down the road.

In addition to cash flow, SCORE mentors can help with all aspects of business financial management. Get matched with a mentor today, and get your company’s finances on track.

About the Author(s)

Rieva Lesonsky

Rieva is CEO of GrowBiz Media, a content and consulting company specializing in covering small businesses and entrepreneurship and SmallBizDaily.com.

CEO, GrowBiz Media
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