Managing Cash Flow in a Consulting Business

Here’s the million dollar question: . . Why do so many profitable businesses still run out of cash when it matters most? That’s exactly what happened to my client. She ran a thriving marketing agency - $78,000 in monthly revenue, 22% profit margins. But every month felt like a cash flow nightmare. She thought paying everyone immediately was good business ethics. Meanwhile, her clients took 45-60 days to pay her. The result? A classic cash flow mismatch that nearly sank her business. Here’s how we fixed it: 1️⃣ Aligned Payment Terms: We matched supplier payments to her client collection cycle, using every day of the agreed terms without damaging relationships. 2️⃣ Weekly Cash Flow Forecasts: No more surprises. Sarah saw exactly when money would come in and go out. 3️⃣ Vendor Negotiations: We secured better terms with key suppliers, showing them the win-win. 4️⃣ Priority Payments: Critical vendors got paid first; less urgent bills waited their turn. 5️⃣ Smart Discount Choices: We only took early payment discounts when it truly made sense for her cash flow. The transformation? - $23,000 more cash in the bank within 60 days - Vendor relationships improved. - Sarah finally sleeping soundly Profit doesn’t keep you alive. Cash flow does. Don’t let your payment habits quietly drain your business dry. #accountspayable  #finance  #accounting 

Net profit ≠ cash flow. (CFOs and accountants, stay out of the comments) The truth is a lot of business owners don't grasp this concept as well as they should. Think about it - any business can be profitable "on paper" and still struggle to keep the lights on. That's why managing your cash flow deserves your attention. Start by sending invoices immediately when work is complete, with friendly automated reminders that keep payments moving without feeling pushy. While you're improving inflows, look at outflows too. Having a conversation with vendors about extending payment terms from 30 to 60 days creates breathing room that costs you nothing but a phone call. This all seems like a much better idea when you realize unexpected expenses always appear at the worst times. To keep your business protected, building a 6-month operating expense cushion isn't a "nice to have", it's an absolute necessity in this day and age. And speaking of preparation, don't just react to this week's bills. Take time to forecast 3-6 months ahead so you can see opportunities and challenges before they're wrecking your calendar and sending your cortisol to absolute max. Remember, profit is king -- but all the profit in the world doesn't matter if you can't fulfill your service because all your cash is sitting in accounts receivable.

The client owes you $100K. You owe vendors $50K. Both are due this Friday. Guess what usually happens? The client pays late. The vendors want their money now. This is the AR/AP trap nobody warns you about. The reality for most mid-market companies: → Average AR days: 47 → Average AP days: 30 → Cash flow gap: 17 days of operational funding needed This silent cash flow gap creates a perpetual working capital shortage that worsens as you grow. As a CFO, I see it all the time: Businesses focus on sales and margins, but neglect the timing gap between collections and disbursements. And often, this timing gap is bigger than their profit margin. The quantifiable impact: - Each day of AR improvement = 1% annual cash flow boost - Missing 2% early payment discounts = 24% lost annualized return - Damaged vendor relationships = higher costs and tougher terms The liquidity equation is simple: → Beginning cash + collections - disbursements = ending cash But execution is where businesses fail. Top-performing companies do this differently: - Enforce clear invoice terms - Start systematic collections before the due date.  - Implement strategic vendor payment scheduling - Track cash conversion cycle metrics at the executive level. Cash flow management isn’t bookkeeping. It’s a strategic weapon for building enterprise value. What specific cash flow gap is holding your company back? Follow Amit Kumar for more insights on accounting and finance. #accountspayable  #finance  #accountsreceivable

Quick quiz: Your biggest client just delayed their $50K payment by 45 days...What's your first move? A) Immediately start prospecting for new clients B) Take out a business loan to cover the gap C) Call other clients to speed up their payments D) Review and restructure your outgoing payment timing Most business owners instinctively choose A or B, bringing in more money or borrowing to fill the gap. But the fastest, most reliable solution? Option D. Here's why this matters: I've seen business owners panic and make desperate moves when cash gets tight. They'll offer discounts for immediate payment, take expensive loans, or burn relationships trying to speed up collections. Meanwhile, the smart ones quietly restructure WHEN money goes out instead of frantically chasing when it comes in. Think about it: If you need $43K in 8 days, what's more realistic? Landing a new $43K client (highly unlikely) Getting a loan approved and funded (time-consuming, expensive) Convincing existing clients to pay early (awkward, unreliable) Negotiating 30-60 day extensions with vendors (often surprisingly doable) The last option is often the path of least resistance, but it requires a different mindset. Instead of "How do I get money faster?" ask "How can I slow down money going out?" This approach has saved countless businesses during cash crunches. It's about strategic timing, not desperate scrambling. Most business owners instinctively try to solve cash problems by bringing in more money. But the fastest, most reliable solution is usually restructuring when money goes out. How did you do on the quiz? More importantly, do you have a plan for the next time this scenario hits your business? Because it will. The prepared business owners handle these situations like chess masters - thinking several moves ahead and maintaining relationships while buying time. The unprepared ones make expensive panic decisions that often create bigger problems down the road. #askmikeg #cashflow #smallbusiness #cashmanagement #beprepared