10 CASHFLOW RED FLAGS

It’s not always clear that a business is about to run out of money. Could any of these statements come from your mouth?

We’re currently operating with less than three times our monthly expenditures available as cash in the bank. More than half of our receivables are unpaid 90 days after the date of invoice, despite our best efforts to politely request remittance. We have no formal processes in place to gauge core clients’ ability to pay us. We don’t ask for credit applications before we start work for them and have no way of checking their credit ratings. One of our long-term clients has suddenly started paying us much more slowly than it used to but is ordering more than ever before. Our clients often ask us for extensions on their invoices while they’re waiting to receive money from their own clients. (The business equivalent of, “Don’t worry, buddy, I swear I’ll get you for this pizza later.”) We’ve been in business for more than five years—well past the startup stress zone—but our operating expenses routinely eclipse our gross sales. We can’t create a rolling budget because we don’t have a system in place to accurately collect financial operating data. We’re very reliant on our line of credit for cash flow, and we’ve already had to go to the bank to ask for a limit increase more than once. A major client has told us they don’t care what the cost is, they just want the job done; moreover, they won’t even discuss the expected tally, telling us “we can talk money at the end.” There is little to no communication between our sales and finance departments.