The State of Cash Flow

From the National Federation of Independent Business

Contiguous with initiating succession planning, owners must be cognizant of their business weaknesses.

As this article discusses, in many situations, cash flow may be an area for improvement that will enable an easier transition to a succession owner. This article hails from the National Federation of Independent Business (NFIB) and offers an outside-industry look at a common issue affecting all business owners.

Cash flow is an integral part of any small business, but factors outside an owner’s control — like the economy, COVID-19 or even the weather — can affect it.

Although business owners do their best to predict expenses and revenues, one in five small business owners find cash flow to be a common or continuing problem, according to the National Small Business Poll on cash flow, conducted by the National Federation of Independent Business (NFIB).

“There are a lot of unforeseen events that are hard to plan for,” says Holly Wade, NFIB’s Director of Research and Policy Analysis. In addition to the obvious challenges caused by COVID-19 closures, business owners are often navigating a host of smaller events affecting their business. “It could be something like construction in the area that’s impacting traffic near a business in a certain way,” said Wade. Here are some ways business owners struggle with cash flow and how they manage their challenges.

The Root of the Issue

On paper, businesses can be profitable but still have cash flow problems. According to NFIB’s cash flow poll, the three main causes of cash flow issues include a difference in timing between expenses and receivables (28%); unexpected variations in sales (21%); and seasonality (20%). While cash flow issues are particularly common for seasonal businesses — especially if their busy times are not as strong as expected — seasonal changes such as weather or slowed business during offseason can affect any company.

To offset cash flow problems, business owners will need to bring in more cash, spend less money or a combination of both. The most common tactic used by business owners is stepping up collection efforts (55.3%) to encourage customers to pay. Depending on the circumstances, this might mean sending out invoice reminders or offering discounts for early payment.

Addressing Cash Flow Challenges

In addition to stepping up collection efforts, business owners said they’ve scaled back their purchases (30.2%), drawn on their personal financial resources (17.2%), adjusted scheduled payments (16.5%), and borrowed money (16.4%). Of those who borrowed money, 68% borrowed from a bank.

Business lines of credit can be particularly useful — 56% of owners responded that they have an open line of credit for business use — in that you only pay interest on what you draw from the line, as opposed to a term loan, which you must repay each month. Wade strongly recommends that business owners establish a relationship with a local bank or credit union in case they need financing at some point.

“When business owners do have cash flow problems, those with business lines of credit can tap into them to smooth out the lumpiness of cash flow,” Wade says.

Cash flow struggles can be more common for newer businesses, Wade adds, because those owners haven’t gone through the trial and error it takes to establish a healthy balance. New businesses also have to spend a lot of money before they start making money. No matter the age of the business, it’s always a good idea to plan by saving and making connections. Wade also recommends that business owners reach out to their local SCORE chapter, a nonprofit organization that offers mentorship and resources to small businesses, for advice. “Maintaining a good cash flow is about navigating the ups and downs and having relationships in place, whether it’s with a bank or a mentor, to work through the tougher times,” she says.


1National Federation of Independent Business. National Small Business Poll, Cash Flow. Published 2016. Accessed December 10, 2020.

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