Singing the cash-flow blues

"No matter how much money you have coming in, it never comes in soon enough to cover your expenses." Suddenly, you're up to your ears in bills with a near-empty bank account, and you don't know where to turn.
Written by Aliza Sherman, Contributor
We've all heard of Murphy's Law: "Anything that can go wrong, will go wrong." But what about the cash-flow law? "No matter how much money you have coming in, it never comes in soon enough to cover your expenses." Chalk this phenomenon up as one of the dirty little secrets of running a business that no one really talks about. Then, suddenly, you're up to your ears in bills with a near-empty bank account, and you don't know where to turn.

My first experience with the cash-flow blues happened in my second year of business, once we had a staff, an office, equipment and the usual overhead of any growing business. My partner pulled me into his office one day and announced, "If we don't get a check in by Friday, we won't make payroll." Not make payroll? That couldn't be possible! We had a slew of clients, a ton of work in production. How could our bank account be so depleted that we were in jeopardy of not paying our staff?

We had nearly a quarter of a million in accounts receivable and less than $10,000 in the bank. Whatever money came in immediately went to paying down bills that had accumulated from several months back. No matter how much revenue we generated, we could never get ahead.

That first cash-flow scare ended with a check coming in by messenger literally midday on Friday. We ran the check to the bank before they closed, and the bank manager put the check into our account as cash. We all wiped the sweat from our brows and joked about needing a stiff drink. Wow, we said, we'll never let that happen again. But it did.

Feeling the crunch

Was our experience unique? Hardly. Alison Berke Morano, president of bworks.com, a full-service Internet development company in Tampa, Florida, recounts the early days of her business in 1995. "In the beginning, it was all crunch and no cash. Marketing and advertising, as well as starting our Web site, were our biggest investments," explains Berke Morano. "We had to decide what was important and what wasn't. The newest technology: important. New shoes: not so important. But, when cash was really low, we had a few credit cards to fall back on."

After six years, Morano has a thriving business and feels her entire outlook on spending, managing and handling money has matured. "I find that I really watch what I'm doing and plan for the future to avoid 'crunch' situations. I have learned to deal with the stress of running my own business and keeping an eye on the bottom line."

For Catherine Delett, founder of Razzberry.com, an online community for teen girls, admitting she needed help was initially difficult. "The first time I had to borrow money to pay my rent was tough," she recalls. "I had money coming in, but it was less than my expenses at that time. I piled up some serious debt for a while, but that gave me the flexibility to keep things moving. Oh, and I found a great accountant!"

Michael Diamant, president and CEO of iClips, a Web-based messaging service, notes that it pays to reserve cash when you don't think you need it yet. This he learned at his first company, the time he had to chase down past-due accounts to get his employees their bonuses in time for Christmas. "I tend to run my company a little more conservatively in regards to cash," he says. "I don't like to be looking at short-term cash-flow issues and have taken measures to avoid that, by either ensuring that I have the ability to raise additional cash early or can extend credit."

I've ridden the roller coaster ups and downs as the cash has flowed in and out of my company, and I'm alive to tell the story. As Morano puts it, "It's all worth it in the end. It's very rewarding to know you're in charge, taking a risk and following your ideas when you run your own business. When you have to struggle, think of it as the price for having it all."

Aliza Sherman is an entrepreneur and author of Cybergrrl: A Woman's Guide to the World Wide Web. She is currently working on her next book and new company.

Editorial standards