When business is good, it can be easy for a business owner to ease up on monitoring their cash flow. It would seem only natural that if the business is turning a healthy net profit, a healthy cash flow would follow. Unfortunately, that isn’t always the case. Failing to closely monitor profit and loss statements as well as the health of your business’ bank account is just one of the cash flow management mistakes you want to avoid.

Cash Flow Management 101

Failing to properly manage business cash is among the most common reasons businesses fail. The cash flow in any business will fluctuate.  It’s important to monitor those fluctuations, when and why they occur, and plan for them in the future. You can do this by creating a cash flow forecast. It should include the estimated weekly incoming and outgoing cash as well as estimated monthly income and expenses for the year. This will help give you a clear picture of the health of your business. It will also help prevent you from overspending when your income peaks and instead, saving part of the profits for a downturn in business.

 

Small business cash flow management

Evaluate Operating Expenses

As a business grows, its operating expenses should evolve with that growth. Not periodically reevaluating those expenses can be a costly cash flow management mistake. Business owners should monitor and ask themselves if each expense is necessary and providing value to their business. If the answer is no, it’s time to eliminate those expenses.

Follow Up on Outstanding Invoices

Failure to vigilantly pursue overdue invoices is a cash flow management mistake that can cause a significant disruption in revenue. It’s important for a business to keep track of when invoices are due. Once they become past due, it’s crucial to step up your collection efforts. Keep in mind that any outstanding invoices are simply your cash sitting in your customer’s bank account. If non-payment persists, it may be necessary to take legal action. Not only will this help you recoup the lost revenue, but it will also subtly send a message to all those you do business with that you won’t tolerate constant or intentional non-payment of overdue invoices.

Tighten Up Credit Requirements

Another important aspect of cash flow management is conducting a thorough credit check before offering customer credit. Even with a good credit report, it is a good practice to keep their credit limit low until a customer proves their creditworthiness. Don’t let the promise of a large order sway you. If the customer proves uncreditworthy, that order will just become an unpaid debt to write off.

No Cash Reserve

Solid credit and collection policies are only part of effective cash flow management. It doesn’t matter if you’re a start-up or an established business, it can be a fatal mistake not to have some money put aside to handle the unexpected. While it may be impossible to be prepared for every unforeseen event, having a cash reserve will provide you with the funds and ample time to figure out how to deal with it.  

managing Cash Flow

Cash Flow Management Assistance

Even the most vigilant business owners occasionally experience an event that disrupts their cash flow management practices. CapFlow Funding Group may be able to help. If your business needs an immediate, short-term influx of capital to keep your business moving forward, alternative merchant funding options can be a great solution.

At CapFlow Funding Group, our team of professionals will evaluate your business’s unique situation and help you determine which funding option would best suit the company’s needs. We service many different industries with a variety of different funding needs. In addition to merchant cash advances and invoice factoring, we work with trusted partners to provide additional merchant funding options. Contact us today!

 

Since the onset of the COVID-19 pandemic, there have been a few different SBA funding options made available to help small businesses survive the economic downturn. One of them is the EIDL loan (Economic Injury Disaster Loan). Much like the PPP (Payroll Protection Plan), the EIDL loan is surrounded by some confusion, especially about how it can be spent. Our goal here is to cut through that confusion and explain how this type of loan works and how to spend it.

The EIDL Loan Explained

The EIDL is a loan extended to small businesses, qualified agricultural businesses, and non-profit organizations that have experienced a loss of revenue due to COVID. Unlike the PPP loans and EIDL Advances that preceded it, the EIDL loan is not forgivable.  It is a low cost, long term 30-year loan with fixed interest rates of 3.75% for businesses and 2.75% for non-profit organizations. The purpose of this loan is to help these businesses and organizations meet the financial obligations of normal operating expenses. 

Unlike the PPP loan and the EIDL Advance, you can still apply for an EIDL, but not for long. The deadline to apply is December 21, 2020. EIDL applications that have already been submitted are being processed on a first-come, first-serve basis. 

EIDL Loan requirements

How an EIDL Loan Can be Used

According to the SBA, an EIDL is to be used to cover “reduced working capital, increased expenses, cash shortage due to frozen inventory or receivables, accelerated debt, etc. EIDL proceeds can only be used for working capital necessary to carry the concern until the resumption of normal operations and for expenditures necessary to alleviate the specific economic injury.”

Admittedly, this explanation is a bit vague. While this is not an official SBA definition, working capital loans are generally used to pay the daily operating expenses of the business. These might include salaries, inventory, rent, utilities, and short-term debt or long-term debt payments. 

EIDL loans are not the result of the COVID pandemic. They have been part of the SBA’s Disaster relief program for years. Their SOP for disaster loans provides some insight into how an EIDL can be used.

To-date Needs – These include normal financial obligations already incurred and the business is presently unable to pay. They are typically listed as liabilities on the most current post-disaster balance sheet. They include funds required to make delinquencies current and to restore working capital to normal levels.

Future Needs – These are normal financial obligations the business would be unable to meet throughout the remainder of the injury period. They can sometimes be a continuation of the to-date needs. Some examples are: 

Extraordinary Needs – These fall outside of normal operating expenses and are directly caused by the disaster. They can include:

EIDL loan restrictions

EIDL Loan Restrictions

Here is an overview of ways that an EIDL loan can NOT be used.

Still Have Questions?

If you are unsure of how you can use EIDL loan funds, it is best to consult with your business accountant or contact the SBA directly. Here at CapFlow Funding Group, we are doing our best to provide our clients with the information and resources they need to not only survive but rebound once the virus is contained and the restrictions are lifted. If you are interested in applying for any of our funding options, please contact us to discuss the possibilities.