Cash flow is very much like a picture of your company’s checking account, in that it represents cash coming in from customer payments, and cash going out to pay for the monthly expenses associated with running a business. As such, it is extremely important that you have a positive cash flow situation, i.e. that more revenue is coming in than is going out each month. Here are three very important aspects of cash flow which every business entrepreneur should be aware of.
Cash flow for startups
Cash flow is usually a big issue for startup companies, because there tend to be more expenses as you’re trying to establish your business, while at the same time you probably won’t have a large customer base. This is a situation ripe for disaster, unless you have other sources of income besides customer payments. Any entrepreneur starting a business should seek to have a business line of credit, or some other form of available income which could be used in the absence of incoming revenue.
Cash flow for seasonal businesses
It is often especially difficult to maintain positive cash flow for businesses which are considered to be seasonal, i.e. those which have significant and dramatic fluctuations in cash flow at specific times of the year, such as during the holidays. This is another situation where additional sources of income can be extremely important, but it also calls for disciplined management of finances, with periods of excess cash being retained to smooth over periods of less income.
General significance of cash flow
The absence of positive cash flow is the number one reason that small businesses fail, as declared by the Small Business Administration. It’s quite common for small businesses to experience gaps in cash flow, and to have no other income sources to draw upon. When that happens, and your business is unable to pay its monthly expenses or its payroll, there are very few alternatives. That’s why at least two out of every three startup companies fails within the first year of operation.
Solving cash flow problems
We at Proactive Funding Solutions may be able to help resolve whatever cash flow issues your business has, in one of several ways. Contact us today to discuss how we can help you smooth over those gaps in cash flow, and keep your business stable, even when customers aren’t making prompt payments.