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Businesses Need to Maintain Cash Liquidity for Unexpected Expenses


Jeffrey Bumbales

Getting a handle on your cash flow doesn’t have to be difficult. That said, it is arguably the most important factor in keeping your business afloat, as well as when qualifying for financing.

According to the Small Business Administration (SBA), 20 percent of small businesses fail within their first year, and as many as 50 percent don’t make it past the five-year mark. Why? Between payroll, inventory, utilities, and outstanding invoices, many small businesses have trouble maintaining enough cash liquidity to cover their operating expenses.

In order to keep your doors open, pay your employees, and invest in your growth, you need to have positive cash flows. In other words, you need to have more cash coming into your business than you spend at any given time.

And while this may seem challenging, you can take the mystery out of cash flow management by following three simple steps.

  • Constantly Monitor Your Cash Position

For a business to be successful, it needs to put itself in a position to seize opportunity. This often means having sufficient cash liquidity at all times. But in order to maintain a proper level of usable cash for your business, you need to start by constantly monitoring your cash position.

Monitoring your cash flow starts with tracking your accounts receivable and accounts payable to anticipate the movement of cash in and out of your business over time. While small businesses generally track their cash flow weekly, monthly or quarterly, it’s best to do so on a rolling basis.

There are many ways to monitor your cash flow:

  • DIY spreadsheets and templates
  • Reporting software that generates cash flow statements
  • Bookkeepers and accountants

The SBA even offers a free cash flow worksheet and templates that are readily available with a quick online search.

Building your own worksheet can be time-consuming, and hiring a professional to handle your finances may be cost prohibitive. Fortunately, online cash flow management tools take the headache out of monitoring your liquidity, analyzing the data, and taking corrective action.

  • Analyze Your Cash Flow Patterns

Once you’ve tracked all of your transactions over a given period and generated a cash flow statement, it’s time to analyze the numbers to identify trends and pinpoint shortfalls.

Look for patterns of positive cash flow as well as the shortfalls, and don’t forget to monitor the timing. Spotting trends will help you forecast, anticipate, plan for, and (in the case of shortfalls) prevent similar issues moving forward.

Don’t forget to look for unpaid invoices and unexpected costs that may be affecting your cash flow. If the same vendors repeatedly violate your payment policy, or if unexpected costs are consistently affecting your cash liquidity, you should take corrective action to prevent future cash shortages.

Online tools like FINSYNC visualize cash flow patterns and trends, as well as the financial impact of your previous initiatives so that you can focus on strategy, decision making, and preventing future cash flow issues.

Related: Cash Flow vs. Working Capital: What You Need To Know

  • Forecast, Project, Act, and Optimize

Once you have a complete picture of your past and present cash flow trends, it’s time to consider the future. Cash flow projections are a great way to plan ahead, avoid shortfalls, and anticipate any potential upcoming business needs.

Forecasting removes the guesswork from your planning allowing you to make better business decisions about growth, financing and more. With a little foresight, you can monitor your accounts payable and receivable relative to your projected cash flow and make any necessary adjustments to remain cash flow positive.

Making projections doesn’t have to be difficult; the recent past is generally a solid indicator of what the next few weeks and months will entail for your business.

Most businesses don’t have the time or resources to analyze spreadsheets, identify trends, and make projections. This is especially true if you have to manually compile and visualize the information.

Instead, many SMBs are turning to intuitive online tools to do the busy work for them. This makes projecting your cash flow simple so you can focus on making better business decisions.

But it doesn’t end there. Did you know that understanding your specific cash flow needs and maintaining a comfortable level of liquidity can help you qualify for business financing? After all, your past, present and projected cash flow is a big part of the approval process for online lending networks.

You’ll strengthen your case with cash flow projections backed by historical data that shows lenders exactly where your business is headed — and how you’ll pay back the funds you’re requesting.

Whether you’re trying to keep your business afloat, qualify for financing, or both, mastering your cash flow is key to your success. Without proper planning, even the most profitable businesses can run into serious trouble when hit with cash shortages.

Author Bio:

The FINSYNC platform helps businesses centralize control of their cash flows while providing access to a network of top lenders to support your additional cash flow needs. From automating accounting and processing payments and payroll to managing and forecasting cash flow, FINSYNC helps you manage all of your cash flows in one click.