Down To Business: Cash Flow

portrait, Arlene Soto, SWOCC SBDC

A look at small business questions from the Southwestern Oregon Community College Small Business Development Center (SBDC). Contributed by Arlene M. Soto CMA, Former Southwestern SBDC Director

My business experiences times when I don’t have enough money to cover all the bills. What should I do?

Low cash flow is a common problem in small businesses and can sometimes even lead to business failure. The first step to correct this problem is to analyze business operations and look for the places where cash can be saved. Some of the common culprits are too much inventory, inventory not moving, slow payment by customers, prices that are too low to cover all costs, expenses that are too high in relation to sales, owners drawing too much out of the business for personal use and even employee theft. Inventory is a business asset but it uses cash. Every item sitting on a shelf for too long represents cash that is not available to pay other expenses. The solution to this problem is to employ inventory management techniques. The best technique depends on the type of business, type of inventory, technology and personnel available to manage inventory, suppliers and customers. Help finding the best solution can be found through the company accountant or through advisors at the Small Business Development Center.

Accounts receivable are another asset that use cash until paid. Customers do not always pay their invoices on time. When a business provides a service or product, then sends an invoice and waits for payment it sometimes can take 60 days, 90 days or more to actually receive the money after expenses have been incurred and paid for. The solution to this cash flow dilemma is to have well defined credit and collection policies in place. Many companies establish a line of credit to cover short term costs while waiting for payment. The Oregon Business Development Department can provide a guarantee to banks for lines of credit to help the bank provide short term financing through the Oregon Credit Enhancement Fund.

A thorough review of business financial statements will help determine whether changes need to be made to pricing or business expenses or owner draws. Financial statements are also the best way to detect employee theft. Many business owners are unaware of how to read a financial statement and use the information provided. An accountant is a valuable asset to have when not sure what financial statements are saying about the business. Also, the Small Business Development Center nearby may have workshops that can help with understanding financial information.

Cash flow is the life blood of any business. If it seems to be an ongoing issue, it’s time to learn more about ways to improve cash inflows and decrease cash outflows.

Arlene M. Soto is the former Director of the Southwestern Small Business Development Center. The SBDC is a partnership of the U.S. Small Business Administration, the Oregon Small Business Development Center Network, the Oregon Business Development Department and Southwestern Oregon Community College.  Additional help is available at the OSBDCN web page,