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Module 3: Cash Flow

Bob’s options

Let’s be Bob’s business adviser for a moment. Going back to the flow diagram, Bob can turn some valves open while closing or slowing others. This can mean generating more revenue at the top, cutting costs somewhere or reducing losses, such as shrink, which happens through unsellable goods.

  • How can Bob increase monthly sales at The Wired Cup?
  • How can Bob negotiate a better deal or two with his vendors or suppliers?
  • How can he plan for seasonal ups and downs in his business to create predictable profits?
  • Should Bob use a credit card to offset some of the temporary cash flow issues?


Possible ideas

Let’s look at some of Bob’s options.

Increase Revenue

    • Provide incentives for customers to pay in cash (credit cards siphon off fees)
    • Start catering
    • Sell gift cards
    • Increase the number of corporate accounts

Negotiate with Vendors & Suppliers

    • Ask for better terms or payment plans
    • Offer to pay an entire year’s rent in 10 months, not 12

Reduce Costs During Slow Months

    • Reduce staffing
    • Change store hours
    • Reduce menu options

The best strategy is to increase revenue, though that’s often easier said than done. Cash is everything in a business, and the more you can generate, the more options you have. Running a business that just scrapes by each month is exhausting. You more than likely went into business to make money, so you should always be thinking along those lines.

Changing store hours or reducing menu selections may reduce costs, but it may also cause your customers to go to a competitor that offers longer hours or greater selection. Bob can, however, save money by reducing staff in the summer. If the staff reductions are students going home anyway and returning when things pick up, so much the better.

Things Bob should never do

Regardless of the state of his business, there are things Bob, or any owner for that matter, should never do.


    1. Never use your sales tax as cash. Yes, it’s tempting when receipts are down, and there’s a pile of cash socked away in another bank account, but it’s hard to replace that money. Plus, the penalties for late- or non-payment can be sizable, causing you to fall farther behind.
    2. Don’t skip loan payments. If you are going to be late or miss a payment, speak with your loan officer as soon as possible. They understand the ups and downs of business.
    3. Do not pay vendors late or less. They can cut off your deliveries.
    4. Don’t overestimate revenue, especially at the start. Money won’t start rolling in magically overnight. It’s easy to inflate the numbers to make the math work, but this can lead to false assumptions and unexpected cash shortages.
    5. Don’t underestimate either. This can cause you to underspend on ingredients, advertising, or staff, leading to a loss of customers.

When in doubt ask for help

Asking others for advice is not a sign of weakness. If you know an accountant or technical adviser at the Small Business Development Center or a SCORE office executive, ask them to explain terms or concepts you don’t understand.

Guessing is far worse than asking for advice. A financial adviser or accountant can help you choose the right software or records management system, guide you through your cash flow projections and help you make informed decisions about your plans for your business.

There’s no shame in speaking with a fellow business person in the community either, especially one who has been in business for a while. They can give you real-world advice about running your business, what to watch for and how to manage your money.

Here are a few other things to think about when it comes to meeting your financial obligations and maximizing cash flow.


  • If a customer pays cash, this is great. If a customer pays with a credit or debit card, this is fine as well, but realize that your profits will be lower because you have to pay for the card processing service and transaction fees. These fees are usually not negotiable.
  • If you’re not willing to pay these fees, you could tell your customers that you don’t accept credit or debit cards, but this may mean you’ll lose business. Also, customers tend to spend more when using credit instead of cash.
  • Sell gift cards. This is a great way to get cash upfront. Just remember that you’ll need to redeem the card at some point with merchandise or services.
  • Corporate accounts are a great way to increase sales, but payments may lag as much as 30 days between the time you deliver the order and get paid for it. You can ask for shorter terms or offer a discount to get paid more quickly.

Vendors and Suppliers

  • If you’re a new business, you’re usually required to pay for supplies, inventory, etc. with cash. After you develop a good reputation for paying on time (roughly a year), you can see if your vendor or supplier is willing to invoice you instead of paying cash. This allows you to take up to 30 days to pay for goods received, freeing up cash in the meantime.


    • If you are looking at a lease, review it carefully. See if there are hidden or additional fees that can affect your cash flow, such as trash removal, maintenance, utilities, landscaping or parking lot maintenance.
    • A major fixed monthly expense for many business owners is a lease or rent payment. Before agreeing to the terms, see what can be negotiated to create some flexibility in your lease or reduce the overall cost. You’ll also want to talk about sub-leasing, co-tenancy and other cost reduction strategies. An attorney may help you review your lease and offer suggestions.
    • If you have a seasonal business, see if you can negotiate a lease that has lower payments during the slow season and higher payments during the busy season to meet the full terms of the lease.