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If you’re facing cash flow issues, you’re not alone. Having a mismatch between inflows and outflows is a problem as old as small business itself. We asked experts Michael Michalowicz, author of “Clockwork: Design Your Business to Run Itself,” and Kate Leipprandt, managing director of Baldwin Financial Advisors LLC, what you should do to improve your liquidity problems. 

It’s the stuff of every small business owner’s nightmares: There’s not enough cash to pay your bills. You’re either in a cash flow crunch, or you’re just not bringing enough money in, period.

According to the small business nonprofit SCORE, cash flow is the number one reason small businesses fail. Why? Assets or inventories aren’t tracked. Operating budgets aren’t lean. Processes aren’t automated. Cash reserves don’t exist.

So now what?

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The Guide to Winning More Business Online


What to Do Now

Fortunately, you do have options. Of the following suggestions, evaluate where you can make the greatest headway first. Start there.

Use Emergency Cash Flow Resources

Probably the most famous small business cash flow management assistance in recent years was the Paycheck Protection Program (PPP) from the U.S. Small Business Administration (SBA). Specific to the pandemic, PPP loans helped keep small businesses afloat when consumer purchasing power plummeted.

But the SBA has long offered funding designed to help small businesses survive. From short- and long-term working capital and financing to microloans and lender matches, the SBA’s top priority is to keep small businesses viable. They’ll even provide you a mentor.

Similarly, many local government bodies (such as cities, townships or community development groups) and larger corporations offer small business cash flow management help in the form of grants or loans. Bookmarking their websites may come in quite handy.

Wrestle Recurring Charges Into Submission

One sneaky cash flow problem can be recurring charges on your business credit card. Just like your personal life, business subscriptions or repeating bill cycles can go unnoticed until you tame them into a manageable cadence.

To get a handle on them, entrepreneur and business author Michael Michalowicz suggests you cancel your credit card and open a new one. Any vendor processing recurring charges will contact you — and you get an immediate awareness of who’s charging you.

Of course you pay those obligations, the Boonton, N.J.-based Michalowicz says. But then you can identify the subscriptions you need to cancel going forward.

Among small business owners with cash flow issues, more than 43% have said they’re frequently at risk of not being able to pay employees.


Surgically Raise Prices

The most common area entrepreneurs shortchange themselves is in pricing, says Michalowicz. So he recommends raising prices on any new customers. It’s easier to start there because you don’t have an established history with them.

Use our free calculator to determine how much you need to raise your prices. Once you’ve done that, you can let existing customers know a price hike is coming. If you feel the news won’t go over well, you can do several things to make it palatable.

  • Add customer value — If customers are getting more for their money, the price hike won’t seem so steep.
  • Be thoughtful — Raise prices on only a few products or services at a time, or develop new pricing tiers that demonstrate differing customer values at each price point.
  • Pace yourself — Roll out the higher prices slowly, over time. It gives you the chance to test the new pricing and/or service strategy to see what the market will bear.

3 Master Strategies for Raising Your Prices

Here’s what you need to keep in mind.

What To Do Next

But small business cash flow management isn’t a new problem. It’s as old as small business itself. So why do we continue butting our heads against the same liquidity wall? One answer: We might just be too nice.

Ask to Get Paid

It seems simple enough. Are you owed money? Then you should ask for it. But one-third of U.S. small business estimate their company currently has more than $20,000 in outstanding invoices.

The average U.S. small business had nearly $54,000 in unpaid invoices before the pandemic.


That means 33% of U.S. small businesses lack the money they need to make payroll, pay off loans, pay other vendors or make a profit.

Honestly, most customers aren’t trying to stiff you. And maybe you don’t always remember to chase down invoices anyway. But nearly two-thirds of small businesses report that the time it takes payments to process has the largest effect on their cash flow.

So remember: The less billing rigor you have, the less you’re able to pay your own bills.

Expand Your Referral Network

Asking current and former customers for repeat business is a straightforward way to gin up new orders. But don’t limit yourself to just customers.

Business connections like vendors, complementary small businesses or other local entrepreneurs are great places to look for new business.

Even competitors can be helpful. You can build up a great “scratch each other’s backs” network where you refer to your competitors when you’re busy. And vice versa.

What To Do Later

Of course, cash flow issues are never a symptom of current events — the usual culprits can be found long before money becomes tight. And no small business will somehow magically defy the cash flow odds forever.

Make a Profit First

It might seem counterintuitive, but Michalowicz is a proponent to setting aside “profit” funds. Open an account at a different bank than the one you normally use, and transfer a percent of every deposit into it. Minimally, 1%.

“Because you’re taking that profit first, you’re forced to run your business accordingly,” he said. “Money will be depleted faster and forces these hard conversations sooner, which is exactly what you want.”

Most businesses steal from profit to stay in business, Michalowicz said, until they can’t do that anymore and then the business is in dire straits.

Kate Leipprandt, managing director of Baldwin Financial Advisors LLC in Arlington Heights, Ill., has seen it happen.

“The biggest problem with small business owners is there is nothing going in their own pocket. They’re not taking salaries,” she said. “W-2 yourself. Put your 401(k) at a maximum. Because if you don’t, then the IRS will call what you do a hobby. And that puts you into a different (and more unfavorable) taxing category.”

Ultimately, if you take the profit you want to achieve first, and you can’t pay your bills then, that means your business can’t afford its bills. And if you can’t do that, there’s a fundamental flaw in your business.

Plan Ahead for Cash Flow Issues

Cash flow issues can happen to even profitable companies. Why? It depends when they accrue revenues and expenses. Sometimes the money on hand isn’t enough to cover significant expenses. Or, a large incoming payment conceals the fact the business isn’t profitable.

So if you haven’t yet, now’s the time to create separate accounts that are only accessed for emergencies.

Leipprandt advises all her small business clients to open a high-yield savings account holding six month’s worth of rent and “nut” funds. Nut funds represent the money needed to run your business, covering mandatory liabilities like salaries.

According to Leipprandt, it’s also very common for small business owners to have personal lines of credit already in place before they hang up their shingles.

“There’s not a single small business owner I know of who isn’t pulling money from their personal side when business goes down,” she said. “It’s not optimal, but it’s understandable. You have to have side pockets of money.”

Start Billing in Advance

Shagging down payments is surely one of the least-favorite to-do items on a business owner’s list. It’s uncomfortable. It costs you time. And there’s no question it costs you money. But it doesn’t have to.

A hard habit to break is the “billing in arrears” mindset. More than half of small businesses globally (53%) bill customers on a specific date, like the 15th and 30th of each month. That’s compared to 47% who ask for payment in advance – charging customers before or at the time of receiving goods or services.

Granted, it’s easier for some businesses to ask for payment at the time of service — there’s no way to get your car from the auto body shop otherwise. But for the rest of you, there’s no law that says you have to bill only after all the work is done.

Start asking for at least partial payments up front, particularly if you need to buy materials at the start.

Make it Easy

In this day and age, it’s understandable if some customers are leery of paying you up front. To head off concerns that once they pay, you’ll be gone, ask for these payments through protected payment options. That includes credit or debit cards, payment services like PayPal or even financing.

Accepting a variety of payment options allows the customer to choose the one they’re most comfortable with. And it allows you to flip the script, making it less about truant customers and more about customer service (for them) and automation (for you).

Consider it a favor you’re doing for customers that pays off for you. In cash flow.

Rainy Days Always Come

Like the dishwasher repair bill you weren’t expecting, businesses can get hit with unforeseen expenses. If you adopt the mindset that something unexpected will always happen, then it’s an easy next step to implement a savings plan as standard operating procedure.

Yes, these small business cash flow management tips are somewhat like having to eat your spinach, but there’s a reason they exist.

They work.

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The Guide to Winning More Business Online