I love talking to small business owners about their different cash flow situations, and in doing so I have come up with a few observations:
- Firstly, many find it a source of embarrassment leading business owners to be reluctant to publicly talk about it. No one wants to publicly admit that they got their company into this situation.
- Second is the ubiquity of cash flow problems. I have yet to hear from a company that didn’t have a cash flow crisis. These events seem to hit everyone at some point and to differing degrees. No-one is exempt from the threat of cash flow affecting their business. No wonder it keeps business owners up at night.
The more we hear the stories, the more business owners can reach out for help knowing that they are not alone and that even the best run business can run into a cash crunch.
Payroll Anchor – One business owner grew to a largely successful size but monthly payroll was $200,000+ per month which meant a good chunk of cash was needed to make monthly commitments. While payroll was always made, many months were by the skin of the business owner’s teeth creating a huge amount of stress and anxiety. On one hand the growing staff was a badge of honor, on the other hand, it was an anchor and obligation that weighed on them monthly.
How can small businesses avoid the payroll anchor?
There is no “easy” solution other than hire slowly and fire quickly, however successful businesses manage large payroll payments by collecting receivables and having buffer in their bank account 3-4 days in advance of the payroll date to make any adjustments as required. By getting into this best practice rhythm payroll pains mostly disappear.
Funds Access – Another business owner was running a successful online company where they used Paypal as their primary payment method. A random situation triggered by Paypal’s hugely powerful algorithms put a freeze on the assets in the account. The trigger was technologically correct but contextually inaccurate. The process to rectify the situation took 180 days (6 months!). That is a long time to be without the funds the business was counting on for cash flow.
How can small businesses avoid funds access issues?
Although using PayPal and other online payments provider can be great from a convenience standpoint, it is always a good idea to maintain a bank account locally. Online firms can put holds on your cash, and even go out of business, however the national banks or credit unions will have deposit insurance and physical locations which you can go to in a pinch.
Both of these companies were successful. They did not go out of business, not even close. But these cash flow crises are what keep business owners up at night. And with good reason.by