Cash Flow Issue? Why Increasing Revenue is Not the Answer
Many entrepreneurs try to solve cash shortages by making a few more sales. This does work in the short term, but it only puts a band-aid on a situation that will perpetuate into stress, anxiety and cash flow issues.
The best way to manage your cash challenges is to look at your expenses. Taking the time to review your expenses will help you know where your money is going and how much is being spent each week.
What report can you run to find this information quickly? Run a profit and loss report by week for the past month.
Figuring out your monthly expenses is your first step to solving cash flow problems. Now you know how much you have to cover each week or month. Does your pricing need to be readjusted? Are your expenses too high? Where can you reduce costs?
You can manage this proactively by creating a budget. This is your plan for spending and income that can be adjusted as needed. It helps if you have accounting software that will create the budget and track the month-to-month changes against your budget. QuickBooks Online Plus has this feature built in—we highly recommend using it to create a plan every month.
If you are still short on cash, who do you pay first? This list from American Express will help you prioritize which bills to pay:
- Taxes: Payroll taxes, sales taxes and income taxes can be garnished, or business assets seized, if taxes are left unpaid.
- Payroll: People can be your most important asset. It’s important to keep their paychecks coming, especially as employees help bring in more business.
- Outstanding Payables: Bills over 60 days due can incur significant interest penalties and put both your credit score and future financing capabilities at risk.
- Rent and Utilities: Prompt payment is important for keeping the lights on and avoiding eviction.
- Key Vendors: If you owe balances on outstanding inventory or services, it’s important to get them paid in a timely fashion to maintain incoming inventory and preserve valuable business relationships.
- Secured Debt: Any items you have personally guaranteed should be paid as quickly as possible so you don’t risk being repossessed.
- Insurance Premiums: Letting insurance lapse means taking unnecessary risks.
- Unsecured Debt: Outstanding sums require a court-ordered judgment or ruling before collection occurs. However, don’t forget that interest penalties and late fees can add up quickly.
- Other Expenses: Professional dues, advertising costs, nonessential maintenance, etc.
Need help figuring out your monthly expenses or creating a plan for the coming year? Click the ‘Let’s Talk’ button below to schedule a time to chat with our team and find out how we can help!