Top 12 Ways to Run Your Business Out of Cash

Is Your Business Constantly Running Out of Cash?

They say that money doesn’t grow on trees, and every business owner and entrepreneur knows how true that is! There’s so much that goes into generating cash or raising capital to turn your vision into reality. Since this capital is so hard (and expensive) to come by, our number one priority should be to maximize it! When it comes to money, you want to ensure that your company is doing what you can to keep that cash flow going and not run out of cash.

It’s a little tongue in cheek, but the following list includes real ways I’ve seen businesses run into serious trouble over the years when it comes to their cash flow.

12 Things Your Business May Be Doing to Run Out of Cash

1. Leaving expenses unchecked for months

I get it, this can be a painful exercise that kicks up your anxiety and puts your brain into fight or flight mode. I get it because I’ve been there! But if you don’t know exactly what you are spending money on, you can’t take action and you are literally letting cash leak out of your business. That is probably what is going to slowly (or quickly if things get rough) kill your business. It can feel tough to keep track of everything, but it’s worth it—I promise. Still with me?

2. Allowing employees to sign up for subscriptions (without an approval process)

It’s great that you trust your employees, but you should never let them sign up for subscriptions without asking their manager for approval. Something that they think may improve their workflow may end up costing more per month than it’s actually worth. Yes, there are tools your people need. But at the very least check in with them in 3-6 months on all subscriptions and make sure they are truly using them. A frugal mentality from all employees is huge. Could you use the free version? If the answer is yes, use it until it becomes a time sink.

3. Pushing for growth without a budget

Growth can be great! But pushing for growth and encouraging your team to push forward after a fundraise without parameters (a budget) can be a mistake. Often the full force enthusiasm means sporadic spending on all fronts which can add up quickly and have your bank account go from “swimming in cash” to counting pennies in a matter of months.

4. Neglecting to monitor accounts receivable

In an ideal world, all clients pay on time. Unfortunately, we don’t live in an ideal world. It’s important to keep an eye on your accounts receivable to make sure you’re getting the money you’re expecting to receive from your clients in a timely fashion.

5. Paying all bills as soon as you receive them

No, we’re not saying to skip out on all of your bills! But know that you don’t need to pay them the second that they come in. Sometimes just paying them on time rather than ASAP can mean significantly more cash for your business, especially if paying them on time means you are now paying your bills at about the time your customers are paying you. (That means you have cash from your customers just in time to pay your bills—this is an ideal situation!)

6. Using high-interest credit cards or debt to fund business losses

It’s not hard to see why that’s a bad idea! It’s easy to click yes on easy money. And remember, business losses are different from growth investments. How do you tell the difference? Ask a CFO!

7. Not budgeting for your in-house employees

Can a great snack stash boost employee morale? Probably a little bit! But it’s important to have a budget for things like snacks, lunches for the team, and supplies for customers and employees. Without a budget, these items can add up quickly. I’ve seen an unchecked snack and lunch budget for a business tight on cash at over $17k a month (yes, really!) that money could have better uses.

8. Securing a high-rent location before you have a strong cash flow

Renting a commercial space is not cheap! Be sure to wait until you have a strong cash flow before getting a high-rent location. Many of these spots lock you into payments for years, it might be better to find a month-to-month office space until you know your cash flow can cover the expense for years.

9. Having an "in a perfect world" business model

We can’t emphasize how important it is to be realistic when building a business model! If your business model only works if everything goes perfectly (you never lose clients, you’re at 100% capacity, etc.) you’re going to be in trouble. Don’t worry, you can have an upside case too, but let’s create both scenarios so there is a backup plan if it turns out our economic view (or that of our sales team) was a little too rosy.

10. Spending all your money in the early startup phase

If you raise capital, you don’t want to spend all of that money right away. Make sure you’re planning for eighteen to twenty-four months of operating losses. A year ago I would have said twelve to eighteen months, but the world has changed a bit in late 2022.

11. Raising capital when you need capital

You know what we’re about to say—you need to raise capital before you need it not when you need it. Desperate need at best means bad terms for your company, at worst it can mean layoffs or outright closing down your business.

12. Forgetting to have a travel policy in place

Travel isn’t cheap, especially these days! It can be helpful to have a travel policy in place to ensure that employees know what they can and cannot spend before they spend it.

Taking Actions to Keep Your Business's Cash Flow Going

You aren’t trying to run out of cash, your business is likely your livelihood and your dreams manifest. But your actions (or lack of actions) may be concealing warning signs that something is wrong, that there is a cash leak in your ship. The current economic environment is too volatile to not keep a close eye on the subtle signals that some tweaking is necessary.

Talk to a CFO today to help ensure that your business won’t run out of cash any time soon.