Hourglass with coins to illustrate running out of cash.The CEO’s Right Hand recently launched a podcast series discussing the growth challenges that small businesses face today, while offering fractional finance and accounting solutions in a CEO Studio Sit-Down. Here, William Lieberman, Founder and CEO, discusses How to Know If You’re Going to Run Out of Cash and what to do.

Listen to the full podcast and visit YouTube for the in-studio interview with Christa Lauri of FiOS1 Long Island, Money’s Main$Street.


Christa Lauri, Host -CL


William Lieberman, Guest Chief Executive Officer -WL

CL – Today we’re talking about how to know if you are going to run out of cash and what to do about it.  Now obviously as a business owner you need to stay on top of your incoming and outgoing finances and you say to start this you need to know the state of the union, so explain that for us.

WL – Absolutely, so you need to sit-down with your bookkeeper and make sure you have a good understanding of all your expenses, everything is in your books, they’ve tracked everything, all you’re your invoices, everything that is owed to you and that you are owed, you owe your vendors. So that you make sure that you reconcile everything every month, so that you match the bank.

“Reconciliation is key. You want to make sure that you’re tracking all of your expenses so you know exactly what you’re working with each month.”

CL – That’s step one.

WL – Step one.  Then from there, generating the reports from that system, from your accounting system so that you can see the cash that is coming in and coming out on even a daily basis for some business, but definitely month-by-month.

CL – Sure, you also talk about building a twelve month forecast considering revenues, cost and expenses, so walk us through that.

WL– Right, so you always want to start with the revenues, that’s the easiest piece. So how much are we going to be bringing in month-by-month or the next twelve months? Some businesses are cyclical and there might be more in the winter or less in the winter, etcetera.

“Revenue. Operating expenses. Cost of goods sold. They all go hand-in-hand.”

CL – Sure

WL – Some business might just be steady. And you just take a look at your past twelve months and then you can forecast out. If there’s new business coming in, what does that look like?  Then from there, step through your costs, so how much does it takes to delivery on those revenues? The product, if you’re a product business, there’s working materials, labor that’s associated with creating that product.

CL– Right, cost of goods sold, yeah.

WL– Exactly or cost of labor if you’re a service business.  Then you have all your operating expenses.  It could be sales and marketing, advertising, social media, etcetera. It could be customer service. You’re in the customer service business, so you have to pay those people to serve your customers.

CL – Yeah, lets delve into marketing and sales a little bit and customer service, tech support. Why is this important in terms of monitoring your cash flow?

WL – Well, what happens is you need to make sure that the amount of money that you are spending on these various activities are actually generating cash for you.  So when you invest in sales and marketing, you’re investing in something that will generate revenue for hopefully in the short run but definitely medium run, so you need to make sure you are spending the right amount of money and not too much because it will eat in to that cash reserve that you have.

“What you are spending money on should generate cash for you in some way.”

CL – And we want to talk about calculations, that phase of forecasting.  Give us your steps on how to spot any red flags.

WL – Well, when you go through your revenues, start with your revenue and subtract all your cost good sold. That gives you your gross margin so your gross profit is a very important number to look at. And typically, companies want to be around fifty, sixty percent.

CL – Of any size.

WL – Yea, typically any size, some industries are different than others, but that is a good rule of thumb. Then from there, you subtract all your operating expenses to get down to your net income or profit. And that again, you want to be ten, twenty percent of your total revenues should be down to the bottom in terms of profit.

CL – And then if you do foresee a problem, you’ve caught that red flag. What can you do about it you want to make sure you are not running out of cash.

“Forecasting will help you to look at your profits on a month-to-month basis”

WL – Correct and this is where that forecast comes in handy.  So you’re using that monthly forecast to look at your profits on a month–by-month basis and if you see profits going negative that will eat into cash and your cash reserves will go down.  So you need to forecast ahead of time to know that’s there going be a problem and if there is, cut expenses ahead of time, especially all the discretionary ones.

CL – It seems simple, but it really is still the king in terms of remedies.

WL – Absolutely, and there’s lots of easy things; you don’t go out to dinner or you don’t take a customer out to dinner or something like that as much or you cut some of the spending that you’re doing on vehicles or things like that, that you don’t necessarily have to do. You can work remotely more, so that you don’t have gas expenses or something like that.

CL – How do you suggest, let’s say, delaying payables? That could help.

WL– Absolutely, so if you’re working with your vendors and you’ve worked with them for a long period of time, you tell them, “hey look I’m going to need to stretch my payables a little bit. I’m expecting some money coming in and work with me because I’ve been such a good customer of yours for many years.”

“Relationship building and good faith pay off”

CL – Relationship building, always. Rely on that when you have to.

WL – And be transparent with them and so you say, “hey look, here’s where I am in my business and here’s how I’m growing it and here’s what I need from you and I’ll give you more business if you do this for me.”

CL – Show some good faith there. All right, those are all great tips there.  William Lieberman, founder of The CEO’s Right Hand, thanks for being on Money and Main Street.

WL – Thank you