We’ve all heard the saying “you have to spend money to make money.” But how do small businesses manage the gaps in timing between expenses and income? Maximizing savings and tracking finances carefully are two keys to avoiding cash flow problems.
A recent Corporation for Enterprise Development (CFED) study, published in 2014, found that over a third of respondents struggled with cash flow difficulties. This was the most frequently reported challenge for micro-businesses of every age and size.
Of course, low sales or low profit margins can lead to cash flow problems. But sound financial management is also very important.
Savings can be a major factor. Less than half of respondents to the CFED study could cover more than a month of business expenses with their current savings. This leaves those businesses very vulnerable to unexpected expenses, or slow periods where revenues are down.
However, I was most surprised to see the following chart about the link between cash flow problems and how business owners track their income and expenses.
CFED speculated that using Excel “requires the owner to be more actively engaged.” It is also clear that just saving receipts is not enough to make sure you have enough cash on hand to keep your business going. What do you think? Is this what you would have expected?
If you own a business, let us know in the comments below whether you have ever had cash flow difficulties, and how you keep track of your business income and expenses. We’d love to hear from you!
CA$H Small Business Coordinator