How Do I Not Run Out of Money in My Business?

An Experienced CFO's Guide

Running out of cash is one of the top concerns for any business owner. Whether you're a startup or a growing company, the fear of running out of money can feel like a constant cloud hanging over your head. But here’s the good news: with the right planning, systems, and mindset, you can keep your cash flow steady and ensure your business stays financially healthy.

As an experienced CFO, I’ve worked with many businesses to help them stay on track and avoid the cash crunch. Here are some actionable steps you can take to ensure you don’t run out of money in your business:

1. Create and Monitor a Cash Flow Forecast
The first step in preventing a cash crisis is having a clear understanding of your cash flow. Cash flow forecasting is essentially predicting how much cash you’ll have coming in and going out over a specific period—typically weekly or monthly.

• Actionable Step:
  Start by reviewing your historical sales data and expenses. Use this information to project future cash inflows (sales, payments from customers, etc.) and outflows (rent, utilities, payroll, etc.). Be conservative in your estimates, especially on the income side, and make sure to include seasonal fluctuations.

• As a business owner, it’s essential to keep an eye on your forecast regularly. If you’re seeing a potential shortfall, you can take corrective action, like negotiating with suppliers, collecting receivables faster, or cutting discretionary expenses.

2. Understand Your Break-even Point
Knowing your break-even point is crucial. This is the amount of revenue you need to cover your fixed and variable costs. Once you know that number, it becomes much easier to spot when you're at risk of running out of cash.

• Actionable Step:
  Calculate your break-even point by adding up all your fixed costs (things that don’t change, like rent and salaries) and dividing them by your average contribution margin (sales minus variable costs). This will tell you how much you need to earn to cover your expenses and keep the lights on.

3. Keep a Buffer in Your Bank Account
Cash flow fluctuations are inevitable, especially if your sales cycle isn’t consistent. You may have months where sales are booming, followed by quieter periods. A cash cushion or buffer helps you weather those lean months without falling into a cash shortage.

• Actionable Step:
  Set aside a portion of your profits in a separate account as a cash reserve. Aim for at least 2-3 months of operating expenses. Having that buffer gives you breathing room in case of unexpected costs or delays in payments from clients.

4. Manage Accounts Receivable Carefully
One of the most common reasons businesses run into cash flow problems is slow-paying customers. If you don’t actively manage accounts receivable, it can create a significant cash gap. 

• Actionable Step:
  Establish clear payment terms with clients and enforce them. For example, set up automated reminders for upcoming invoices, and if needed, offer early payment discounts to incentivize faster payments. If clients consistently pay late, consider adjusting your payment terms or implementing stricter credit policies or not extending credit at all. 

5. Cut Unnecessary Costs and Improve Efficiency
It’s easy to overlook unnecessary expenses when business is going well, but cutting costs can make a big difference in maintaining positive cash flow. Efficiency is key—sometimes small adjustments can free up cash that can be reinvested into the business.

• Actionable Step:
  Review your expenses every few months to identify areas where you can cut back. For instance, renegotiate vendor contracts, consider outsourcing non-essential tasks, or switch to more affordable software tools. Additionally, look for ways to streamline operations and reduce waste.

6. Secure Alternative Funding Sources
Having a plan for emergency funding can be a lifesaver when cash flow takes a dip. Relying solely on your business’s internal revenue may not always be enough, especially if there are unexpected delays in payments or seasonal fluctuations. 

• Actionable Step:
  Explore different funding options, such as lines of credit, business loans, or even crowdfunding, that can act as a safety net. Just be sure to have a clear repayment plan, so you don’t end up in a cycle of debt.

7. Track Key Financial Metrics Regularly
A big part of preventing cash flow issues is being proactive about your financial health. By tracking key financial metrics—like your accounts payable, accounts receivable, operating expenses, and profit margins—you can spot red flags early and take action before things get out of hand.

• Actionable Step:
  Set aside time each week or month to review your financial statements and key metrics. By staying on top of your numbers, you’ll catch any cash flow issues before they snowball. Using software like QuickBooks or Xero can help you automate some of this monitoring and give you real-time insights.

8. Work with a CFO as a Financial Expert
If you’re feeling overwhelmed by cash flow management, it may be time to consult with a CFO as a financial expert. A CFO can help you put in place a comprehensive financial strategy that keeps your cash flow steady and ensures your business is prepared for both growth and unexpected challenges.

• Actionable Step:
  If you don’t already have a CFO, consider outsourcing this role to an experienced professional. A CFO will help you build strong financial foundations and offer the strategic insights necessary to avoid cash flow crises and make smarter financial decisions.

Become more proactive managing your money

Running out of money in your business is a real concern, but with careful planning and attention to your cash flow, it doesn’t have to happen. Start by understanding your cash flow, managing your accounts receivable, cutting unnecessary costs, and keeping a financial buffer in place. These actionable steps will help you stay ahead of any potential issues and keep your business on solid financial footing.

Remember, cash flow is the lifeblood of any business. If you're not sure where to start or need help getting a handle on your financial strategy, consider working with a CFO. With the right guidance, you can ensure your business thrives—not just survives.

If you're ready to take control of your business’s financial future, book a free discovery call with us today. We’d love to help you build a strategy to keep your cash flow healthy and your business growing.