Small Business Cash Flow: Understanding When the Crunch Happens
In the last few blog posts I’ve talked about ways to reduce the cash leaving your small business and increase the cash coming in. In other words, these are all methods to shrink the cash flow gap.
I just read a case study (on the Business Owner’s Toolkit website) that gives a really interesting perspective on the cash flow gap. This case study profiles a small business that makes custom furniture, and tracks the cash flow in and out of the business as the owner creates a custom dining room table.
A picture is always worth a thousand words, and the bar graph that goes with the case study is priceless. It tracks, over the duration of the job (67 days), both the cumulative cash flow and the company’s check register. You can easily see where the cash flow crunch occurs. It happens over and over again, with the cash flow going negative on day 13 and not hitting the black again until day 67. Ouch! That’s 54 days of operating in the red.
This case study really gives you a picture of why cash flow is so important to a small business, and how easily your business might be operating in the red even if your accounts receivables look healthy. Read the whole case study here, and then take a look at your own small business’ cash flow picture:
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Photo credit: Cash flow
They say cash is king so it’s always good to know more and more ways of how to manage your cash flow especially in small businesses. Thanks a lot for the case study! i found it very interesting and helpful.