A healthy cash flow, which is the difference between the money you receive from customers and the bills you must pay, is vital to the success of any business. We recommend that all businesses run a monthly cash flow report to gauge financial health and use it to make changes where necessary. The statement should show the change in your company’s cash flow status from one reporting period to the next. A positive cash flow means that your business takes in more than it sends out while a negative cash flow means just the opposite.

Cash Flow is Different from Profit

Your business can appear profitable on paper yet still have a negative cash flow. As an example of how this can happen, assume that a customer ordered $50,000 worth of products from your company. You then had to spend $25,000 to purchase supplies to fulfill the order. Landing the deal required a bit of negotiation, so you gave the customer 90 days to pay for the products ordered. However, you only have 30 days to pay your own suppliers. This is on top of other ordinary expenses you have such as rent, payroll, and business insurance.

Poor Cash Flow Management Can Cause You to Fall Behind on Debt Payments

It is common for businesses to take out both short-term and long-term loans. When your company pays out more in expenses than it takes in for revenue, you run the risk of becoming delinquent. Past due accounts come with late fees, potentially higher interest rates, and the possibility of the lender refusing future business with you. Avoiding this scenario is critical for the future financial well-being of your company.

Options for Improving Cash Flow

When you consistently struggle with cash flow, the most obvious options are to cut expenses wherever possible and tighten the terms on your accounts receivable invoices. However, that is not always enough and sometimes you need additional help. Lionheart Commercial Capital offers many alternative financing options for small business owners. We invite you to contact us today to learn more.