Managing Your Cash Flow


Written By CMG News Contributor Doug Carleton


As I frequently mention, how you manage your cash flow every day is one of the most important decisions you have to make during the pandemic-induced slowdown. The light at the end of the tunnel is getting brighter as new vaccines begin to be approved and distributed. The consensus right now is that by spring or early summer, more and more people will be getting vaccinated and the economy will be improving. A month ago, who would even have speculated that suddenly we would find ourselves with two vaccines that have shown great promise and will probably receive emergency authorization from the FDA within weeks? Add to that the fact that by late February or early March the weather will be getting warmer and restaurants will again be able to start serving dinners outdoors, and people will be going out more to shop.


Cash Flow Decision Making


Look hard at every-day decisions to see how they affect your cash flow. Then calculate a three-, six-, and twelve-month projection. There may be things in your day-to-day operations that you had never given a lot of thought to. By forcing yourself to calculate three projections up to a year out, you may see items that you have been spending money on that, within the next month or two, you could get rid of or change to a cheaper alternative. Could you cut an hour off your open or closing time? Could you put off purchasing something that could improve your bottom line but that really could wait a few more months? Could you possibly do with one less employee for a few months?


Here Are a Few Thoughts

  • If you sell multiple products, can you pare down the number at all? Does the 80-20 rule apply to your product or service offerings - the 80/20 rule being 20% of your products generating 80% of your profits. Carrying inventory that doesn’t turn over quickly costs money. Money is tied up that you can’t get to, and potentially some of your inventory, if you are not a service business, may be financed. So now you are paying interest on items that are sitting and not generating revenue and cash flow. Here are just a couple of examples (on a much larger scale but still applicable). Coach – the luxury handbag maker is cutting its handbag styles by half. It used to produce around 1,000 models every season but is now cutting it to 500. The CEO, in the Wall Street Journal, was quoted as saying, “We don’t need three types of red.” Kohl’s has reduced the number of different towels it sells from 320 to 265.

  • Do you know your company’s cash cycle? How long does it take to convert the investments in inventory or other materials into cash? Do you manage your receivables and payables aggressively?

  • Depending on your relationships with your vendors or suppliers, could you ask for terms that could improve your cash flows? Could you offer some form of discounts to customers who might be willing to pay early?

And finally, and maybe most importantly, do you have the best relationship possible with your banker? Banks are the major providers of lines of credit and by far the cheapest. Many online lenders are offering working capital financing, and it is always faster than banks. However, it is always dramatically more expensive. If you have a strong relationship already established at your bank with a target amount in mind that you need (backed up by your cash flow projections), you could act fast if the right opportunity comes along or you need cash quickly to cover something. The cost compared to the online lenders will have the least detrimental effect on your cash flow.


Businesses are improving. People have money to spend. There is a light at the end of the tunnel.

This blog entry is a slightly edited excerpt from Doug Carleton's 'The Daily Life Of A Small Business Owner' series. Doug was a mentor with SCORE, Startup Virginia, and Lighthouse Labs, and has 25+ years of experience in small business finance including 12 years in SBA lending. To contact Doug directly, please email him at sbaloanspecialist@comcast.net.