How To Avoid a Cash Flow Crisis: A Comprehensive Guide for Virginia Small Business Owners

This is part two in a series about cash flow management for small business owners in Virginia. Check out part one, “Cash Flow, Debt, & Refinancing for Virginia Small Business Owners.”

Cash flow problems can strike any business, regardless of size or industry. The Covid-19 pandemic is an example of how an unexpected event can suddenly disrupt the economy and require a pivot to survive. In this article, we’ll offer tips for operating your business more efficiently so you can avoid cash flow problems that could negatively impact your business’s bottom line.

Understanding Your Business’s Cash Flow Needs

Taking your cash flow seriously will help you avoid and avert a cash flow crisis before it gets out of control.

• Start by looking at KPIs such as sales and profit margins to help you avoid a cash shortage.
• Update your financial statements regularly so you know how money is moving through your business.
• Understand your cash flow cycles, such as busy seasons and slower ones.
• Stay on top of inventory, which is essentially cash out until it gets sold.
• Streamline your account receivables and payables to ensure optimal inflow and outflow.
• Build relationships with your vendors, suppliers, and clients so they will be more willing to renegotiate terms or pay quicker to help your business stay afloat.

You may not be able to prevent every cash flow crisis, but watching your statements closely will warn you of any potential issues before they get out of hand. It’s better to get a handle on the situation before it gets out of control.

Open a business line of credit

To help with any business cash flow problems, a commercial line of credit can serve as a safety net when you need it. And when you don’t need it, you don’t have to use it.

Commercial lines of credit can be used for just about any cash expense such as payroll, inventory, and other overhead expenses. Whether you have predictable seasonal cash flow needs or something unexpected happens, you can transfer funds from your credit line into your business checking account.

Look for ways to cut back

Review your expenses and look for places to cut back, though not in areas that could end up being harmful to your business. You won’t want to alarm employees with excessive cutbacks either. Some expenses, such as employee costs or inventory, are crucial to have, but others can be eliminated to help prevent cash flow problems.

Consider looking into your expense categories such as energy consumption, travel, entertainment, event venues, etc. to find areas where you can reduce spending.

Also, there may be assets that you no longer need or are not making the best use of, such as company cars, corporate travel, or rented office space.

Improve Inventory Management

Audit your inventory. Make a list of the items you purchase that don’t sell as quickly as other products. They take up cash and could improve your cash flow if you cut some of those slow-moving products. Even if you have to put items on sale to get them out the door, it’s worth it to free up cash for other needs.

Trust the future of your business to our expert lending team!

Reviewing and updating your business plan can help you get ahead of any cash flow challenges your business may face before they get too big. F&M Bank’s Business Team is here to help! Wherever you are in the Shenandoah Valley, from Harrisonburg to Staunton, you can contact a member of our team or visit one of your local branches in Augusta, Page, Rockingham, or Shenandoah county to learn more about cash flow management or to apply for a new business loan today. Have questions? Get in touch today!