July 15th, 2020 – Importance of Business Cash Flow [2:05]

SUMMARY: Firm founder, Cecil Nazareth, CPA, MBA explains why you always need to keep your eye on your cash flow and be very realistic about your projected cash flow—and personal financial statement–during these uncertain times ahead.

As everyone knows, COVID-19 has created major uncertainty in the marketplace. All small businesses are really hurting, and some may have already availed themselves of the Payroll Protection Program (PPP). Payroll is one of the biggest costs small businesses face, at least that funding came in for many.

But when it comes to your cash flow, there are other variables to consider: rent, utilities, and a lot of other fixed expenses are incurred. If you don’t have demand for your product during the pandemic, (i.e. your revenue has crashed), you are inevitably going to have major cash flow crunch.

Banks have tightened up their lending practices during the crisis. The Fed has pumped in a lot of liquidity to keep everything afloat, but I would say in the next six months, it is going to be a major challenge on cash flow.

I urge all small businesses to work on their projected cash flow to understand the following:

• What are your outgoing bills that must be paid on time? 
• What are the inbound payments you are expecting? 

A lot of customers are paying their bills late and a lot of vendors (who are cash-squeezed themselves) are demanding to be paid faster. This could trigger a credit squeeze or a credit freeze. And if that happens, it will create major cash flow problems over the next six months. 

I’ll give you another example in taxes: Even with a three-month extension all the taxes were due on July 15th. Everyone was scrambling to pay their taxes for 2019, plus their quarterly estimates for Q1 and Q2  of 2020. This created major problems and I’m seeing it reflected in my clients as we speak. I urge everyone to focus on a business cash flow and also start working on a personal financial statement that can help you alleviate the burden for the next six months.

Contact me any time if you or someone close to you has concerns about their business cash flow situation or personal financial situation during these unprecedented times.