One of the best ways to navigate tight cash flow is to prioritize your payments. By doing so, you can focus on paying the important payments first and less important ones later.
Here is the way I generally prioritize payments when cash flow is tight or negative:
- Payroll (As a CFO I usually tried to hold two to three weeks of estimated payroll in reserve when budgeting for a negative cash flow – employees generally don’t keep working when you don’t pay them).
- Taxes - payroll, sales and use, business, personal property, etc. (You will pay late charges and a hefty fine for not paying these on time. You could also face criminal charges if you knowingly fail to pay tax obligations.)
- Rent, utilities, phone, data lines (i.e., the things that keep the company open for business)
- Equipment rent and notes, bank notes, mortgages, and other items that have been financed (Late payments to finance companies are usually reported to credit reporting agencies such as Dun & Bradstreet and TRW.)
- Vendors from whom you’ll need services in the near future.
- All others.
Prioritizing payments may not lower the stress of tight cash flow much. But it will allow you to have a plan and not worry about who you are going to pay when cash is received. It also helps you estimate when you will be making payments when you receive collection calls, which most small businesses receive from time to time.