When Cash Is Short
12 Things NOT To Do

Author: Larry Chester, President

We have all run short of cash.  But when your business runs out of cash, it’s no joking matter.  Now with the new uncertainty to every business because of COVID-19, shelter in place and working from home, your cash flow may suddenly become uncertain for the first time.

There are steps you can take to find extra cash.  But when you get too creative, you will have your conscience shouting NO!  If your stomach turns because you aren’t sure if you should do it or not, the answer is DON’T.  Here are twelve things you shouldn’t do.  Each one will create more problems than it solves.  Guaranteed.

1. Don’t make promises you can’t keep. Your promise is the result of a good faith negotiation.  If your promise has no meaning, then it’s like the boy that called wolf.  Next time, no promise will work.
2. Don’t break your promises.  Your reputation is a key asset.  Keep in mind, when it comes right down to it, your integrity is the only thing that you have to sell.  Don’t squander it.
3. Don’t lie and don’t exaggerate – reality is bad enough.  Just explain the situation.  Every business owner has run into problems before.  Plus, it’s impossible to remember what you told them last time.  Just stick to the truth.
4. Don’t just depend on financial statements.  They’re important, but they don’t tell the complete story about how your business is doing.  Understand your cash flow.  Your income statement might say you’re profitable, but that doesn’t mean you have enough cash in the bank.
5. Don’t delay reconciling your bank account.  That’s the true test of how much money you really have.  It is the truth behind all your business activities.  You might have miscoded an AP invoice, or forgotten to enter a payment you made, but the bank statement doesn’t lie or forget.
6. Don’t ignore small expenditures.  They can add up really fast.  Is that new order for office supplies, or that new web-based service really necessary?  An extra $100 a day for a business doesn’t sound like a lot, but that’s an extra $3,000 a month.
7. Don’t overdraw your bank account.  You’re better off not paying your suppliers than bouncing checks.  That is the fastest road to becoming Cash In Advance, the bane of every business owner’s existence.
8. Don’t live in the float.  If you send out checks hoping a deposit will save you in a nick of time, you’re walking on very thin ice.  First, you’re depending on something that you don’t have control over.  Plus, it doesn’t buy you much time.  Now checks clear the bank in only 24 – 48 hours.
9. Don’t delay paying the government.  They’ll give you fair warning, but don’t ignore it.  When they don’t hear from you, their next step might be a lien on all of your accounts.  An IRS lien will lock up every account you have – instantly.
10. Don’t mess with payroll.  You MUST pay your employees, your payroll taxes, and make your 401K payments.  Payroll deductions for 401k contributions are your employees’ money.  Don’t steal from them.  Make the deposits to their accounts as expected.  Also, keep using your payroll service.  They will keep you honest.
11. Don’t send out checks without a signature.  Sounds funny, but people do it.  First of all, it’s annoying to the people who were expecting a check from you.  But primarily, it’s just plain dishonest.
12. Don’t purposely over-advance your credit line.  Your bank has no patience for you not managing your cash and depending on their largesse to keep you afloat.  Especially in these difficult times, they will give you little leeway.  The bank will end up bouncing your checks, and that WILL cause a difficult domino effect.

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Being short on cash is difficult.  It will keep you up at night.  Everyone, your customers, suppliers, employees, and your family depend on your continuing ability to run your business and provide for them.  Taking the time to do proper cash flow planning helps you stay one step ahead of problems.  But make the right decisions.  Heading down the wrong path doesn’t help.  It leads you down the slippery slope to greater difficulties.  And, with every misstep you take, getting back on the right path becomes increasingly more difficult.  Build an accurate cash flow forecast to keep your business operating smoothly, and you sleeping soundly at night.  We can help.