Data from the Bureau of Labor Statistics show that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first ten years. Only 25% of new businesses make it to 15 years or more.
According to a U.S. Bank study, 82% of business failures are due to poor cash flow. When a customer doesn’t pay on time, or your sales projections end up being lower than anticipated, that can significantly strain your ability to cover day-to-day expenses.
Poor cash flow can lead to a downward spiral and is the reason for the demise of so many new businesses. Once a business owner is stressed out with how they will cover the next bill, they become distracted and less productive. The people in the organization feel it too, which brings down morale amongst employees, which in turn continues to hurt the company as a whole.
The only way out of this relentless cycle is by an infusion of funds and a fresh start, but at that time, it may be tough to get a loan.
Of course, there are many things a business can do to improve cash flow, but it all begins with awareness. By understanding your state of cash flow, companies can plan and put in place the right strategies to manage their cash flow while growing their business.
The first step is to have a 12-month cash flow projection, use your cash flow projection to anticipate your working capital needs, and plan for upcoming expenses, so you don’t run out of money.
Morris Reichman is the founder and CEO of Payro Finance. Former Vice President at Infinity Capital Funding an alternative finance company, Morris possesses a versatile background in the finance industry. Having spent 7+ years working across global macro operations and start up corporate finance Morris's expertise is in business accounting, risk management and investment analysis. Morris founded Payro Finance to support business owners and ensure their business continuity.