For many rapidly growing small business owners, while their sales are rising and profits look promising on paper, behind the scenes they may be struggling to make payroll and keep critical expenses covered. Often, the issue comes down to just a few factors that can impact the bottom line, such as the timing of incoming customer payments, owner draws that quietly deplete available cash, or poor cash flow forecasting. Managing rapid growth can quickly become a problem, especially when a business is facing a cash flow squeeze at the same time.
Getting a clear understanding of your cash flow position is the first step toward sustaining growth and avoiding cash squeezes to build a more resilient business. Here are three practical steps that can help business owners get the financial insights they need to handle cash flow squeezes and continue scaling their business successfully.
- Build Consistency into You Cash Flow Tracking
Start by developing a consistent cash flow tracking report, then identify the key expenses that impact your cash outflow. Consistently monitoring your costliest expenses is an effective way to identify expenditures that can be reduced or restructured to improve your business’s cash flow position. For example, if you notice a trend of rising costs for goods or supplies, negotiating with vendors or suppliers for better discounts, longer payment terms, or lower-cost alternative products can help free up cash immediately.
For entrepreneurs who are caught in cash flow growth squeezes, often their first choice is turning to high-interest credit cards or high-cost alternative lenders for financing help. A smarter option is to consider a Community Development Financial Institution (CDFI), like HBDI, that can help with access to flexible and affordable financing. Starting a conversation with HBDI about your working capital needs is a smart choice. HBDI partners with business owners to provide the right financing that can be structured around a cash flow timing gap, a collateral shortfall, or the refinancing of high-interest-rate debt.
- Plan for Growth That Comes Next. Not for Growth That Just Happened.
Smart business owners who are successfully growing use insights into their cash flow position to inform financial decisions and drive sustained growth. Their goal is to prepare the business for the opportunities that come with future growth. For these successful business owners, growth means more than celebrating increased sales, gaining more customers, or withdrawing large amounts of capital from the business. It also means identifying the things likely to break as sales continue to grow, such as systems, processes, and financial resources.
Working with an advisor, at no cost, in the HBDI Business Innovation and Technology (BIT) Center, business owners can get help building a cash flow forecast and setting-up a minimum cash reserve to help plan how money will move through the business and how much cash is needed to cover critical expenses and protect payroll. Once your advisor knows where your business is headed and where your cash gets tight, they can also work with you to structure the best course of action or financing option.
- Ensure the Right Mix of Processes and Technology
Another key opportunity to enhance cash flow as your business continues to grow is to ensure you have the right mix of processes and technology in place. For example, start by identifying inefficient processes where you or your team are performing excessive manual data entry or spending hours on tasks that could be automated. Automating accounts payable is one process you can streamline right away. Rather than printing out supplier invoices and manually entering the information into your accounting software, have your vendors and suppliers send their invoices directly to a designated email inbox or submit them through your accounting software system.
Accounting software, like QuickBooks with AI, can automatically extract information from an invoice, import it directly, and identify and flag items that require your attention. This allows you to simplify and centralize your accounts payable process while freeing up your time. This simple process improvement can drive greater efficiency by centralizing all invoices and bills in one easily searchable location while creating opportunities to reduce overall purchasing costs.
Growth Should Create More Income. Not Create Cash Flow Squeezes.
The HBDI BIT Center helps business owners identify their unique financing and advisory needs, provides best practice guidance, and offers access to resources that support sustainability through free technical assistance, workshops, and advisory services. Financial advisors who partner with HBDI often bring insights into what has worked for other businesses and can recommend practical strategies based on their experiences to improve cash flow. Growth should generate more income, not create cash flow squeezes that leave a business struggling to fund its own success.