One out of every three small businesses fails within the first two years, most often due to poor cash flow management. In meeting with business owners in Wilmington and throughout the greater region, one topic that almost always comes up in conversation is the difficulty of managing cash flow.
Most business owners don’t feel they have the time to step back and create a strategic financial plan because the everyday details of managing a business are all-consuming. They’re spending their time on the more immediate needs – like making payroll tomorrow or paying vendors next week, versus looking at the big picture. This understandably leads to anxiety and fear of not having control over their business’s financial future. Not only does that not feel good, it’s not a viable business plan.
To alleviate that stress and to make the most of your business’s cash flow, here are a few things to consider:
- Take advantage of new financial tools and technologies available to help you manage the inconsistency of cash flow. Such tools allow you to monitor the short-term pulse of your cash flow, while also understanding the long-term trends to be able to optimize your operations based on business cycles. Ultimately, these tools allow you to confidently make informed everyday decisions about money moving in, around and out of your business.
- Determine your current cash flow trends and your future outlook. Tabulate all significant cash inflows that relate to sales, new loans, interest received, etc. Then define all expected payments, such as payroll, vendor payments, capital spending, loan repayments, tax, interest payments and other expenses. The result will be net cash flow, positive or negative. Many businesses use a rolling forecast because of the flexibility it provides in responding to changing and volatile market conditions. This is especially helpful if your sales start increasing and you find yourself thinking about adding employees and inventory. Those steps will accelerate near-term cash disbursements, so it’s important to map out when you expect expenses to increase before sales do, usually before your big sales season.
- Make payments promptly and directly. Online bill pay services allow business owners to streamline processes and reduce time and costs involved with paying bills. Additionally, credit, check or purchasing cards help control the timing of payments and track spending more effectively.
- Invest excess cash effectively. There may be times when you have more cash on hand than needed to meet current obligations. Take advantage of tools like sweep accounts, money market accounts and certificates of deposit to invest excess cash while maintaining liquidity.
- Ensure access to cash. The most challenging time to try to obtain financing is when there is an urgent need for cash. By establishing a business line of credit, owners can ensure they’ll have access to the credit needed to respond to cash shortfalls and take advantage of new opportunities.
- Seek expert advice. Sometimes a third-party expert’s perspective and guidance can prove invaluable. Last year, PNC introduced a new tool called Cash Flow Insight, which is the first online banking tool to track and manage cash flow in real time. Business owners can view a snapshot of their cash flow and easily manage it all in one place.
Cash flow is the lifeblood of any business, and as such, it’s critical to maintain a clear understanding of and control over your financial picture. With an informed forecast and the proper tools, you can weather cyclical and competitive challenges while growing your business.
Chris George is senior vice president at PNC Bank and longtime Wilmington resident. He has served PNC and its predecessors for more than 20 years in various leadership roles. PNC Bank, N.A., a member of The PNC Financial Services Group, Inc., is one of the United States’ largest diversified financial services organizations, providing retail and business banking; residential mortgage banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management.
These articles are for general information purposes only and are not intended to provide legal, tax, accounting or financial advice. PNC urges its customers to do independent research and to consult with financial and legal professionals before making any financial decisions.