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Businesses & Cash Flow

Businesses & Cash Flow

Most business owners are aware of the importance of cash flow if they have been in business for more than 30 days. No matter what your business or industry, the saying “Cash is King” is always accurate. The more cash a business has in the bank, the more likely they are to be in business over the long term. The hardest thing for a growing business to manage is its cash. The faster a business grows, the more likely they will have cash flow issues.


It is imperative that a business knows its cash turnaround time. If the business doesn’t get paid upfront for any or all of the work to be performed, the owner needs to know how long it generally takes to collect their money.  If it takes 30 days to get paid, the business should have a 30 day cash reserve.  There are many steps available but these are a few every business should take to help control their cash.


First, a business should have their Credit Policy in place from the start. The business owner should establish when credit will be given and how it will be determined. The business owner needs to answer some questions.  Do you want to require a retainer or deposit before work is started and, if so, how much? What are the payment terms; will payment be required when work is complete or within 30 days? What happens when payment is not made according to your policy? When do you send a reminder notice? If payment is required within 30 days, do you send a reminder notice at 15 days? What happens if payment is not received at 45 days? Collection agencies will tell any business that the longer the time without payment, the less likely the business is to actually collect.


Secondly, establish a Line of Credit as soon as possible. The business owner’s best friend should be their business banker.  The time to apply for a line of credit is when the business doesn’t need it.  Generally, the business should be 2 to 3 years old. Start talking to your banker immediately; take your banker to lunch. Ask them for advice. Most small business owners will still be required to sign personally for the loan. With a line of credit, you sign an agreement with the bank indicating they will allow you to borrow up to a given dollar amount and at a specified rate (usually a variable rate).  There is usually an annual fee for having this agreement and that is the only cost until the business starts borrowing.  Therefore, if you don’t need the money it doesn’t cost you anything, but if you do need to borrow, you don’t have to ask for a loan at that point.


Third, Control Business Expenses.  If you have vendors that will allow you to pay in 60 days, then you want to make sure your customers have to pay within 30 days. Additionally, if you can take a discount for paying early, then every effort should be made to take those discounts.  A word of caution, if you don’t have a cash flow projection, this could be expensive if you pay early and then have to borrow to meet other obligations later in the month.


Finally, having a Budget and comparing both sales and expenses will help a business owner know where they are in attaining their goals.  Many accounting software packages have this feature available and enable a business to project their budgets by month. Having a budget is an additional step in projecting cash flow.  Don’t be mistaken in thinking one replaces the other.  They are both vital to the financial well-being of an organization.

See Also


As importantly as what to do to control your cash flow, there are certain things not to do. The main NO-NO is failing to pay IRS for payroll taxes. This is NOT a funding source for any business. It is very expensive.  If a business is more than 10 days late in making a payroll tax deposit, there is a 10% penalty plus interest charges.  That is not an annual interest rate, it is a per-time penalty. If you must borrow money, a credit card generally has a 3% cash advance fee so you would be saving 7% right up front; making this a far better alternative. As with payroll taxes, sales tax for the State of Florida is not a funding source. They also have penalties and interest for not paying timely. These penalties and interest can compound, making a once-manageable amount become astronomical.


These are a few ideas for managing cash flow.  Every business should have a CPA not only for tax purposes but for financial ideas and sound advice.

Elizabeth P. Davies, a partner at Proactive Tax & Accounting, is licensed as a Certified Public Accountant in the State of Florida and is a Certified Tax Coach. She has concentrated on accounting and taxation for the last 30 years. For more information, visit

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