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Staying in the Money: Ten Ways to Keep Cash Flow Problems from Putting You Out of Business


Every small business owner knows the trouble that comes with managing the ins and outs (pun intended!) of cash flow. You can have tons of loyal customers and be an expert at getting new business and still be kept awake at night with cash flow worries. Authors Tage Tracy and John A. Tracy commiserate. They know cash flow is an issue that can send good businesses to their graves.

“Cash flow problems have a habit of sneaking up on a business, especially in a rocky economy,” says Tage Tracy, coauthor along with John A. Tracy of Cash Flow For Dummies? . If a business is earning a profit, many business managers simply assume that cash flow is satisfactory. But even if profit is good, cash flow can be bad.”


Cash flows pose an unending challenge to business owners and managers because they have to be carefully managed. Read on to learn what you can do to make 2012 the year of the cash flow reboot for your business.

Respect and understand financial statements. According to some surveys, 25 percent of businesses don’t even maintain accounting records (let alone produce financial statements).

“The bottom line for small business owners is simple,” says Tracy. “If you don’t make an effort to prepare, review, and completely understand your financial statements, then you need to ask yourself why you’re in business in the first place. And this especially holds true for the statement of cash flows, because an abundance of invaluable information is available from this most commonly overlooked and mismanaged financial statement.”

Plan, do projections, and plan some more. Proper planning is essential to the launch, growth, management, and ultimate success of your business as measured by the ability to generate profits and, just as important, to avoid running out of cash. According to Tracy, “Having access to sound financial plans structured for different operating scenarios is an absolute must.”

Focus on capital and cash—the lifeblood of your business. One of the most common reasons small businesses fail is that they lack adequate cash or capital, not only to survive difficult times, but also to prosper during growth opportunities.

“Remember, one of the greatest losses a small business can realize is that of lost opportunity, which has its roots in not being prepared to properly capitalize on market opportunities,” explains Tracy. “The harsh reality is that this great loss is never accounted for or presented in any way, shape, or form on the business’s financial statements. Rather, missed market and business opportunities lurk in the torturous thought, Imagine what I could have achieved!


Understand your selling cycle. The length of the complete selling cycle is often much longer than the aspiring entrepreneur projects and/or wants to believe.

“The selling cycle in its entirety spans the time from the very start of the process when a product or service is first visualized and developed to supporting customers after the sale and developing additional products or services that may be in demand,” says Tracy. “And if not properly managed, the selling cycle generally becomes one of the largest consumers of cash in a business. Without fail, almost every aspiring business owner, at one point or another, will experience delays in the selling cycle.”

Manage your disbursements cycle. To counteract the selling cycle cash consumption machine, businesses need to understand that the disbursement cycle (managing expenditures and cash payments to vendors, employees, and other creditors) can be leveraged and managed to be a primary source of cash for your business. 

“Invoke what’s called the matching principle,” advises Tracy. “That is, similar to properly matching revenue and expenses to ensure that an accurate measurement of a business’s profit or loss is obtained, you should be able to match cash inflows and outflows.” 

Be creative to generate cash. The following three areas offer significant opportunities for creativity when looking to improve cash flows:

  • Turn your assets over more quickly. The more quickly you can turn over assets, the more quickly they turn into cash. It’s as simple as that.
  •  Leverage your vendors, suppliers, and financing sources. They don’t want to lose your business, so placing just the right amount of leverage on these groups can result in enhanced cash flows because liabilities offer a source of cash.
  • Manage external sources of cash proactively. Proactively manage your relationships with banks, leasing companies, and even the federal government to ensure that cash is made available when needed.

 Balance the balance sheet. Many businesses overlook the concept of properly managing the financial structure of their balance sheet, which has gotten more than a few businesses in trouble.

“Your business needs to strike a proper balance between making sure that current assets are financed or supported with current liabilities,” notes Tracy, “and making sure that long-term assets are financed or supported with long-term sources of capital such as a five-year note payable or equity. Every business should strive to achieve a financial condition that ensures constant maintenance of adequate levels of both solvency—the ability to pay all just debts—and liquidity—the ability to quickly access cash to support business operations.”


Understand external capital markets.  When it comes to external capital markets, think well ahead. In today’s economic climate, it takes a long time to identify external sources of capital and to secure them. So plan well ahead to make sure that you’ll have cash available when needed, because it’s not a process you can rush.

Protect cash at all times. Cash has a unique characteristic unlike other assets that makes it highly susceptible to additional risk of loss: Cash is an extremely liquid and marketable asset.

Always think of CART. CART equals complete, accurate, reliable, and timely. Your company’s financial and accounting information system needs to produce complete, accurate, reliable, and timely financial information, reports, data, and so on, which management can use to make informed business decisions. 

            “When you have the proper systems in place and know what to look for, you can keep cash flowing, helping you to grow a successful business,” says Tracy. “Let 2012 be the year you place a renewed focus on properly managing your cash flows.”

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About the Authors:

Tage C. Tracy is principal owner of TMK & Associates, an accounting, financial, and strategic business planning consulting firm. John A. Tracy is professor of accounting at the University of Colorado in Boulder and the author of Accounting For Dummies?.

About the Book:

Cash Flow For Dummies?(Wiley, 2011, ISBN: 978-1-1180-1850-7) is available at bookstores nationwide, major online booksellers, or directly from the publisher by calling (877) 762-2974.

About For Dummies?:

After nearly 20 years and with more than 200 million copies printed, For Dummies is the world’s bestselling reference series, well known for enriching people’s lives by making knowledge accessible in a fun and easy way.  Loyal customers around the globe agree that For Dummies is “more than a publishing phenomenon … [it is] a sign of the times,” [The New York Times].  The books span every section of the bookstore, covering topics from health to history, music to math, sports to self-help, technology to travel, and more. The For Dummies brand presence is further expanded with the addition of eBooks, a corporate custom publishing program, a robust consumer website, and a licensed product line that includes consumer electronics, culinary, crafts, video, software, musical instrument packs, home improvement, automotive, game, and more. For more information, visit Dummies.com. For Dummies is a branded imprint of Wiley.


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