It is often said; that Cash is King. Having the cash available when it’s time to pay the bills is crucial to every business. It is reported that 82% of small businesses fail due to cash flow problems. Monitoring and controlling cash flow are one of the most important responsibilities of the owner/manager of a business. It is even more important in our area where a lot of our business is seasonal. Planning for the lean times during the times of plenty can make the difference between surviving to see another season or becoming a statistic. Here are some tips to help you survive.

Create a budget. Your budget should include an Income Statement with projected sales and expenses, a Balance Sheet projection that will show the financial condition of the business during the budgeted period, and a Cash Flow projection based on the projections you have made in the Income Statement and the Balance Sheet. This Cash Flow Projection will show you any time during the period you may experience a cash-poor position. Being able to know it’s coming and plan for it can make a big difference in your ability to continue your business. Now that you have this budget, compare all three projections to actual results and make adjustments as necessary.

An Asset is what the business owns. An increase in an asset account will cause a decrease in available cash. For instance, your Income Statement shows you had a big month in sales and profits. You look at the bank account and you can just barely pay the expenses. Where did the money go? If those sales were made on credit, it resulted in an increase in your Accounts Receivable Account, an asset, the cash is not available. Say you didn’t look at the cash and purchased additional inventory. The asset account for Inventory increased but it took away from the available cash. A good reason to manage these accounts closely.

Let’s look at liabilities. That’s what the business owes. If you have an outstanding loan and because the Income Statement says you had a good month you decide to pay off that loan. The liability account decreases but so does your available cash to pay the expenses at the end of the month. A decrease in a liability account reduces the amount of cash available.

I’m not saying don’t do any of those things above, they are all good business practices. But you must analyze how the decisions you make will affect your ability to pay the expenses at the end of the month. Determine the timing of those decisions based on your projected cash flow.

Monitor and protect the credit of the business. If your cash flow projection shows you will experience a cash-poor period, apply for a line of credit when you are cash rich. Use that LOC to get through the off-season and then start paying it back when things pick up. That should be part of your budgeting as well.

There are other actions and decisions we make that can affect the available cash. I always encourage business owners to have a good accountant on their team to help with these decisions and monitor their cash.

Let me know your thoughts at eddavis@scorevolunteer.org.

For more information and assistance with cash flow and planning, request a mentor from Port Charlotte SCORE at www.portcharlotte.score.org. Volunteers provide confidential business advice to meet the needs of both start-up and existing entrepreneurs at no cost. To learn how you can become a SCORE volunteer contact Nils.Weibull@scorevolunteer.org. Follow us on Twitter; @charlottecscore