Are you tired of running out of money after paying payroll?
Running out of money after paying payroll is a common challenge for many business owners. Here are some potential financial solutions to help manage this issue effectively:
1. Cash Flow Management
Implementing a robust cash flow management system is crucial. This involves tracking all incoming and outgoing cash to ensure you have enough liquidity to cover payroll and other expenses. Tools like financial dashboards can provide real-time insights into your cash flow status. A CFO can also create a customized 13-week rolling forecast to better manage and control cash flowing in and out of the business.
2. Stop Managing from your Bank Account Balance
Managing your finances based on what is in your bank account will leave you stranded without a plan. Your bank account doesn’t always reflect the prior commitments you have made to spend money in your business. It also could be missing upcoming payments expected and thus it doesn’t provide a clear financial picture of what you can afford. It is important that you create a financial budget and forecast plan to get clarity on what you can actually afford.
3. Budgeting and Forecasting
Create a realistic budget and regularly forecast your financials. This helps in anticipating future cash needs and avoiding shortfalls. Regularly compare your actuals against the budget to identify any discrepancies and adjust accordingly. Reviewing % allocations to each category monthly and ensuring it is appropriate for the size of the business. Making sure those allocations are aligned with the business financial goals is important and part of the job of a fractional CFO.
4. Building Cash Reserves
Set aside a portion of your profits into a cash reserve fund. This fund can act as a buffer during lean periods, ensuring you can meet payroll without stress. We normally recommend 50% of profit be kept in the business, but this recommendation can vary depending on how capital intensive the business is, whether there is inventory needs, and owner’s risk tolerance.
If you need help budgeting & forecasting in your business, feel free to book a call with a CFO.
5. Reviewing Expenses
Regularly review your expenses to identify areas where you can cut costs or opportunities to invest more. This might include renegotiating contracts, finding more cost-effective suppliers, or eliminating unnecessary expenses. Allocating funds to the right marketing activities could yield higher revenue and return on investment (ROI) that helps cover the expenses while increasing profit.
6. Increasing Revenue
Explore ways to increase your revenue, such as launching new products or services, expanding into new markets, or improving your sales strategies. Higher revenue can help cover payroll and other expenses more comfortably.
7. Financing Options
Consider financing options like lines of credit or short-term loans to cover payroll during cash flow gaps. Ensure you have a clear plan for repayment to avoid falling into debt traps. This also needs to consider the amount of existing debt, the owner’s tolerance to risk, and having measurable outcome expectations to ensure results.
8. Implement Profit First
Adopt the Profit First methodology, which involves allocating a percentage of your revenue to profit, taxes, payroll, and operating expenses before anything else. This ensures that you always have funds set aside for essential expenses, including payroll. Make sure to skip the 14 new bank accounts as that is not necessary to implement the profit first methodology. This can be accomplished with just 2 or 3 bank accounts.
By implementing these financial strategies, business owners can better manage their cash flow, reduce the stress of meeting payroll, and build a more financially stable business.
If you need support making the necessary changes to avoid the paycheck to paycheck cycle in business ownership, make sure to book a call with a CFO.