September 3, 2020 Cash Flow en_US How can a small business owner manage their cash flow in a way that brings a level of stability and sanity to a year that otherwise feels out of control? Ask the expert: How can small business owners manage cash flow?
Cash Flow

Ask the expert: How can small business owners manage cash flow?

By Chelsea Fagan September 3, 2020

It can sometimes feel like a competition for “who has had the worst 2020.” It’s a competition that no one wants to win, of course. But professionally, small business owners have been pretty high up there in terms of how the coronavirus has upended and redirected our work.

As the owner of a small financial media company, the month of March was particularly frightening. My business partner and I spent many days running the numbers and asking questions every entrepreneur tries desperately to avoid:

  • Will we have to downsize?
  • Will we have to change our business radically?
  • Will we have to close entirely?

During the first weeks of change, when the business’s future seemed impossible to map, we felt the cold winds of a potential mass exodus of clients. We felt completely uncertain about how we would continue to do business in a world that looked nothing like it had before. Would people even want to talk about personal finance in a time when such a topic is so precarious?

Looking back from the more certain (if still deeply unnerving) month of August, things look substantially better for us. People are online more than ever. They’re watching videos, reading articles, and investing themselves in the concept of understanding and regaining control of their finances. Unfortunately, 2020 has not been the banner year we had hoped it would be, in terms of our growth and editorial expansion. But we have managed to stabilize and even eke out a few success stories in an otherwise chaotic five months.

Not a day goes by that we don’t feel acutely grateful for being spared the worst, as many other business owners have not. But all of that said, it has still been a complicated year in which we made many difficult decisions. Essentially, we cannot afford to live the same way as a company as we did at the beginning of this year. Even with all of the obvious travel and in-person event expenses eliminated, there are still many corners to be cut. And cash flow is at the top of our list of concerns.

So how does one manage their cash flow in a way that brings a level of stability and sanity to a year that otherwise feels out of control? We are following these four simple rules to keep things above water financially and emotionally.

1. There’s a difference between ‘need to have’ and ‘nice to have’

If your business is going well, it can be easy to accumulate expenses, which become a kind of foregone conclusion in the day-to-day operations. On our end, we generally run a fairly tight ship and have relatively little overhead for a business of our size. The majority of our operating costs are the salaries and compensation of our eight employees and most regular freelancers. But we still have areas where we can mistake “optional” expenses for “essential” expenses.

For example, we produced one particularly expensive weekly show, uninterrupted, for nearly two years. Producing the show weekly was always the way we did things. Then we looked at the numbers. We realized that trimming back to three monthly episodes was an easy way to save tens of thousands of dollars while still meeting our editorial needs. Just because we used to conceive a product (in this case, a show) a certain way did not mean it always had to be thought of that way or unquestionable when reviewing a budget.

2. This year is an outlier that may require different solutions

It can be easy to see your business and your cash flow in a vacuum. You may only compare your numbers to last year’s numbers and where you had hoped to be. But most of us are going to look somewhat bad in terms of year-over-year revenue. This year is an aberration for nearly every industry (except videoconferencing app companies that, essentially, have a license to print money at this point).

When you’re thinking about your budget—how you’re allocating resources and managing cash—it’s essential that you not conflate it with what a “normal” 2020 would have looked like. A big part of keeping a clear head during all this, which is crucial to riding the inevitable waves of uncertainty and disruption, is putting your business and industry in context. We are in a time where survival is a victory, and we cannot lose that sense of perspective.

3. You have tools and resources—find them and use

One of our biggest goals amid this crisis was to get through the year without downsizing personnel. If we could keep our team’s jobs stable and pull out a somewhat decent year that didn’t affect their lives fundamentally, it would have been an enormous win.

Early on, my partner (to whom I must give all the credit for being the most adaptive and investigative at finding tools to navigate COVID-19 as a business) pushed us towards getting our Paycheck Protection Program loan. We secured our loan and explored all kinds of funding sources to open up our options and pad our cash flow.

The various resources available to small business owners and how banks are working with us are changing daily. Not understanding where your business can take advantage of special programs and offers isn’t just a missed opportunity. It’s a potentially serious disservice to your company and employees.

And if shame is a factor—the feeling that using government grants or lines of credit somehow undermines your competency as a small business owner—remember, big corporations are more than happy to use these tools and more. And we should not be missing out and bootstrapping while the big guys cash out.

4. Cash is more king than ever

We’ve never had a particularly loose relationship with cash. Like most small businesses, our margins are thin enough that we always want to err on the side of caution when it comes to making payroll and paying our bills. But we had a more lax relationship with exactly how much we needed to keep on hand versus how often we would use credit and loans.

But with uncertainty that can lead to tightened belts in business lending and volatility in our clients’ markets, we want to be several steps ahead of our cash needs. We all know that having a nice buffer is essential to peace of mind and the ability to be discerning as a business owner. But, now, that buffer means a solid boat on which to navigate increasingly choppy waters.

In these times, you want to be the one holding the cards and making decisions. You want to be the one who has control of your timeline and choices and knows, no matter what you read in the news, you can be sure about where your small business is headed. We cannot change the virus, but we can change how we react to it and how its ebbs and flows influence our world. Managing your cash flow is one of the most important components of regaining that sense of stability and freedom in a world that can feel short on both.

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Chelsea Fagan


Chelsea Fagan is a writer, a home cook, and the founder of The Financial Diet, a destination to learn and talk about money. She hosts “The Financial Confessions” podcast, and you can find her every Tuesday on The Financial Diet's YouTube channel. Currently, she is on the road from “absolutely terrible with money” to “pretty good with money.” And in the meantime, she’s probably panicking over an overcooked roast. Find her on Instagram @faganchelsea Read more