Don’t Run Out of Money When You Least Expect It

By Charlene Maurer Finerty

Businesses are comparable to people in many ways. They start small, some grow faster than others, many exist on a plateau within limited geographic boundaries. Both celebrate significant milestones and likely face good and bad surprises along the way. All need to foresee money requirements prior to expected events, as well as arrange for the unexpected.

Three important business junctures are: the start-up stage; the decision to add the first employee; and the expansion phase. The majority of entrepreneurs are cognizant that a new business requires a certain amount of money to start. Most underestimate the full amount, but at least their thinking is in the right direction.

If the business moves along nicely, a self-employed (me/myself/I) entity must take a leap of faith and add an employee. Often this is when the owner is maxed out and desperate for relief. The mere thought of hiring is scary. No time to screen anyone; no understanding of payroll forms and processes, taxes and insurance; no personnel and/or procedures manual; and on it goes. The worst of it, since everything is in the owner’s head, is that he/she needs to stop, turn off the world, and train the new hire. This phase is likely to suppress income at the very time costs are increasing.

However, one of the most common times for a business to run out of money is when sales are booming and the business is growing. This is dangerous because tight money is least expected and stakes are usually higher than during start-up. It likely occurs when the entrepreneur starts to relax, feels happy, even bragging. The owner’s shoulders finally feel lighter because employees are shouldering responsibilities, and good relationships have been built with vendors and clients. The “ah hah” moment has arrived. Is it time to celebrate? All these sales…”wow, let’s buy a ….”(you fill in the blank). Sneak some home expenses into the business accounts payable? Don’t even think about it.

It is terrific to reach a stage when the owner feels confident enough to take a long weekend, trade in the rattletrap car, but splurge, even cheat? Not so fast.

Depending on the business, a lot rides on whether there are inventory and accounts receivable, since both act as giant sponges soaking up money that would otherwise be in the checkbook. However, those trapped dollars sitting on a shelf, riding around in the service van or sitting in the accounts receivable file are unavailable to pay utility bills, payroll, taxes, the owner, etc. Without preplanned financing, the vice tightens in sync with the speed of growth and percent of profit margins.

Please, compare actual income and expenses to cash flow forecast on a monthly basis. Based on results, habitually tweak and extend cash flow forecasts for 12 to 24 months. It’s amazing what foresight can be gleaned from this practice.

(Charlene Maurer Finerty, Plans and Profits, LLC writes, edits and teaches custom business plans. See Check her 6 ½ hour Do-It-Yourself Business Plan class on DVD at Contact Charlene at or 845-343-1515 between 9:00 a.m. and 7:00 p.m.)