The Emotions Surrounding Cash Flow

Larry Chester, President

What is the one thing that most business owners fear they’ll run out of? It’s cash. But despite the stress that this can create, there is probably something even more concerning: the emotions surrounding cash flow as it relates to payroll.

There is nothing more important to you — or your employees — than payroll. Some employees check their bank account every payday to assure that they got paid. When a company runs into Cash Flow issues, you can put off paying your suppliers. You might put off some loan payments. You can even put off your rent payment for a while.

But you can’t delay payroll.

There is an emotional component to Cash Flow problems in a business. There is added stress. Your employees are depending on you. These are the people that you work with day in, day out. They depend on you to pay them, just as you depend on them to come to work.

Consider the following when you’re caught in a cash crunch:

Your feelings are involved in different ways:

1. If you don’t pay employee on time, will they come back to work tomorrow?
2. You’re embarrassed that you don’t have enough cash to cover their payroll.
3. This is just a temporary turn of events, but you’re concerned about it happening again.
4. It has become your top priority because there isn’t anything more important than paying your people.

What are the first things you need to do?

1. Calculate how much money you’re going to need to cover your payroll and your tax payments.
2. Determine how much money you have in your bank. Take your current bank balance and subtract all the checks you’ve written that haven’t cleared.
3. Look at your bills to see what else you need to pay this week.
4. Review your AR to see what cash you will get in the next two weeks. Can you get it sooner?

How do you fill the gap?

1. If you have a line of credit, call your banker for a short term over advance.
2. Take an advance from a credit card — at no interest.
3. Call your best customer and ask them if they can pay an invoice or two early.

How do you keep it from happening again?

1. Take a strategic look at your business and be honest with yourself. Is your business growing or shrinking? Strategically what can you do about it?
2. Put together a plan, not just for this week’s shortfall, but how you’re going to have more cash to operate your business. Is this a cash collection issue, or is it a sales issue, or a cost issue? Each one requires a different response.
3. Sitting at home lamenting your situation isn’t a solution. But if you need to do it, take a few hours to feel sorry for yourself and your situation. Then get off the couch, formulate a plan, and put it into action.

The best approach is to put together a 13 Week Cash Flow Forecast. This is something we as fractional CFO can help you create. Once in place, you’ll have more time to adjust when you see that shortage coming. Couple that with an active plan to head it off the next time, so that you’re not facing it again, and you have a winning strategy.