Can you ever go out business when you are profitable?
This typically can happen with companies that are growing sales extremely fast since they are continually reinvesting cash back into their business. However due to poor cash flow management or slow payment from their customers the owner may find that their business has simply run out of cash.
Here are a couple of ways to manage this problem.
1. Prepare cash flow projections and compare the projection to your cash balances periodically.
2. Look at expenses early in your cash flow projection period and address cutting them accordingly.
3. Tighten your credit granting practices.
4. Say no to new work unless the client has a history of paying its bills early or provides you with a retainer.
It is also wise to consider setting up a safety net, such as a working capital line linked to trade receivables, if available. While they are difficult to negotiate these days as banks will only loan you money if you don’t need it, if successful in securing one it may just be what keeps you in the game when times get tough.
This article was written by Jay Kossen, CPA at Numerico, PC. Click here to view Numerico’s website.
