You’re generating solid revenue. Business is steady. But when it comes time to cover payroll, pay bills, or make a key investment, you’re short on cash. Sound familiar?
This disconnect is more common than you might think, especially for small and mid-sized businesses. You can be profitable on paper and still face a cash crunch. Why? Because cash flow – not just revenue – is what keeps your business running day to day.
Cash Flow vs. Revenue: What’s the Difference?
Revenue is the total amount of money your business earns from sales. It’s a key measure of performance, but it doesn’t tell the whole story. Cash flow is the actual movement of money in and out of your business, what’s deposited in the bank and what’s paid out.
If you’re booking a lot of sales but clients are slow to pay, or you’re carrying too much inventory, your revenue might look great while your cash flow suffers. That’s when things get tight, and even profitable businesses can struggle to stay afloat.
Common Causes of Poor Cash Flow
- Slow-paying customers: Waiting 30, 60, or even 90 days for payment can seriously stall your cash flow.
- High overhead: Recurring costs like rent, subscriptions, or loan payments can add up quickly.
- Inventory buildup: Tying up cash in inventory that doesn’t move fast can leave you short elsewhere.
- Poor forecasting: Without a clear picture of future inflows and outflows, it’s easy to overspend or miss signs of a coming crunch.
How to Improve Cash Flow
- Tighten up receivables: Encourage faster payments by offering early pay discounts or implementing late fees. Make it easy for clients to pay online or via ACH.
- Forecast regularly: A 12-week rolling cash flow forecast can help you anticipate dips and plan accordingly.
- Review your expenses: Look for subscriptions or services you no longer use and negotiate with vendors for better terms when possible.
- Manage inventory smartly: Don’t overstock, use just-in-time ordering, or focus on your fastest-moving products.
- Consider financing options: A line of credit or short-term loan can provide breathing room during seasonal dips or temporary delays in receivables.
- Work with us: We can help identify trends, run what-if scenarios, and find areas for improvement you may not see on your own.
Cash Flow Is a Symptom and a Signal
Chronic cash flow issues can be a sign that something deeper needs attention, such as pricing, business model, operations, or structure. It’s important to look beyond the numbers and dig into what’s driving the issue.
Need help getting a handle on your cash flow? We work with Connecticut business owners to untangle these challenges and develop strategies that help you not only survive but build a more sustainable business.