Small Business Finance

Implementing a cash flow management system is crucial for small businesses. The business owner recognizes the difference between cash flow and income. We often hear business owners say they are having a great quarter, but are worried about making payroll next week. Why? In many businesses, sales that repeat on an annual cycle tend to be seasonal, yet have recurring business expenses such as payroll and rent.

Taxes also must be factored into the equation. Also, Accounts Receivables (A/R) constitutes an issuing of “credit” to customers for sales where income has yet to be realized. Of course, they also receive “credit” from a supplier in the form of Accounts Payable (A/P). So even a business that runs on a cash basis needs to have a cash flow management system to smooth out the peaks and valleys.

Many businesses get a line of credit (LOC) from a commercial bank to solve this uneven cash flow problem. The danger is that the business owner now has another “business partner” that may not be so understanding during a dry spell, putting the viability of the business at risk. Most business owners don’t realize the stranglehold that the commercial banks have on them . . . until it is too late.

We help our business owner clients set up cash flow management systems to solve this problem by identifying wealth transfers, money that they are unknowingly and unnecessarily transferring away from the business, and help them set up an “alternate banking system” that they control. By becoming aware of these inefficiencies and putting that money aside, they build equity in the business, and have a source of compounding capital to draw from when needed.

The system is modeled after Warren Buffett’s investment strategy at Berkshire Hathaway, Jeff Bezos’ cash flow management system that built Amazon.com, and the traditional banking and insurance industry models. This scalable model may be started at the “you and me” level, which may grow as large as desired by the business owner. This results in capital efficiencies greater than 100% over those businesses run on a cash basis, dramatically increasing the safety, success and profitability of the business.