HOW TO AVOID RUNNING OUT OF MONEY WHEN YOU NEED IT MOST

Over 1/3 of UAE businesses go out of business in the first year due to running out of cash!!

 

No matter how profitable you are on paper, if you don’t have cash when you need it, your business will run into problems. All business owners will be drawn into a fire-fighting exercise as they were not adequately prepared for this happening.

 

Many SMEs struggle with cash flow issues, often without realizing it until it’s too late.

 

This guide will break down the basics of cash flow management, highlighting common mistakes, and offer actionable solutions to ensure your business stays financially healthy.

 

Understanding Cash Flow

Cash flow refers to the movement of money in and out of your business. It’s different to profit.

 

Profit is the value increase to your business based on your effort. The more chargeable activity you produce that is higher than your cost, the more profit you make.

 

Profit doesn’t take into account if you are paid for it. Payroll is paid. EOSB is not. Sales invoices are raised but they are not paid.

 

For this reason your business could be making money on paper but still experience cash shortages due to timing differences between income and expenses.

 

The Two Types of Cash Flow:

1. Positive Cash Flow – More money is coming into your business than going out. This is ideal and indicates financial stability.

2. Negative Cash Flow – More money is going out than coming in. This can lead to financial struggles if not managed properly.

 

Common Cash Flow Mistakes SMEs Make

1. Ignoring Cash Flow Forecasting

 

Many businesses fail to plan their cash flow. Without a forecast, you may not realize when a shortage is coming. Some business cashflow can be non-conventional (like you invoice your clients or pay your suppliers in advance), so forecasting cash needs a financial model to calculate.

 

Solution:

• Use simple forecasting tools to project cash flow over the next 3-6 months.

• Track when payments are due and when you expect to receive income.

 

2. Late Payments from Customers

 

Delayed payments from clients can cause serious cash flow problems. Many SMEs don’t have clear payment terms or a system for follow-ups. Workflow actions and good working relationships with customers are essential to make sure cash is managed!!

 

Solution:

 

• Set clear payment terms (e.g., 30-day invoices with penalties for late payments).

• Automate reminders through accounting software.

 

• Offer discounts for early payments.

 

• Be prepared for a professional but difficult conversation. Sometimes, the “good cop-bad cop” routine can be effective

 

3. Overspending on Non-Essentials

 

Growing businesses often invest too heavily in areas that don’t generate immediate returns, such as unnecessary office upgrades or software subscriptions or be seduced by discounts on upfront payments.

 

Solution:

 

• Prioritize spending on essentials that directly impact revenue.

 

• Regularly review subscriptions and cut those not in use.

 

• Evaluate a commitment, especially on software licences

 

4. Not Separating Business and Personal Finances

 

Mixing personal and business finances can make it difficult to track your cash flow accurately. I have seen this a lot in my time in FeeFi!!

 

Solution:

• Open a dedicated business bank account.

• Use accounting software to track expenses.

• Push your suppliers to bill the business directly.

• Don’t allow your supplier bad habits to transfer to your business.

 

5. Failure to Prepare for Seasonal Fluctuations

 

Some businesses have periods of high sales followed by slow months, leading to cash shortages if not planned for properly.

 

Solution:

• Set aside a cash reserve during peak seasons.

• Diversify revenue streams to stabilize cash flow.

 

 

How to Improve your Cash Flow

 

1. Use Technology to Automate Cash Flow Tracking

• Implement accounting tools like Xero, Zoho, or QuickBooks. Raise estimates & purchase orders as a mechanism to forecast future commitments.

• Use automated invoicing and payment reminders.

 

2. Shorten Payment Cycles

• Invoice immediately after completing work (or in advance if possible).

• Offer multiple payment methods for convenience (these may cost more)

 

3. Negotiate Better Payment Terms with Suppliers

• Request longer payment terms (e.g., 60 days instead of 30).

• Consider early payment discounts if your cash flow allows.

• Use your cashflow forecast as a tool to manage your suppliers. Don’t over commit and under deliver. Good working relationships with all stakeholders are ESSENTIAL in cash flow management.

 

 

4. Build an Emergency Cash Reserve

• Set aside at least 3 worth of operating expenses if you don’t have a reliable cash flow forecast.

• Use a separate savings account for emergency funds.

• Make sure you plan and pay back your directors loans if needed. Short-term funding from owners can cause big issues down the line if the business is looking for investment.

 

 

5. Regularly Review Your Financial Health

• Set monthly cash flow check-ins.

• Regular reviews with sales, clients and suppliers.

• Work with a fractional CFO to analyze financial trends and adjust strategies

 

 

FeeFi’s Final Thoughts

Poor cash flow management is one of the biggest reasons small businesses fail!

 

By implementing better forecasting, managing expenses wisely, and leveraging technology, and most importantly, being human, you can ensure that your business remains financially stable and prepared for growth.

 

Need help managing your cash flow? At FeeFi, we specialize in turning financial chaos into strategic opportunities. 

 

Contact us today to get your finances on track!

 

If any of this strikes a chord with you, book a free discovery meeting HERE.