Why You Should Do a Cash Flow Analysis

Knowing your business’ cash flow is the most important thing about running a small business. We asked one of our Business Development Officers, Shanna McClearn, why exactly it is important, common mistakes small business owners make, how you can better manage your cash flow, and how Opportunity Fund can help you.

Here at Opportunity Fund, our goal is to help small business owners like you make better financial decisions and get the right loans to help your business thrive. One of the most important things you can do for your business is to do a cash flow analysis on your finances.

To help you understand why cash flow analysis is important and how you can better keep track of your money, we asked one of our Business Development Officers, Shanna McClearn, what advice she has for you.

Why Is Cash Flow Analysis So Important?

Cash flow analysis simply means looking at your business’ influx and outflux of money. By having a detailed analysis of all your financial transactions, you will know exactly how much money should be in the bank.

If you don’t keep track of your cash flow, you run the risk of being taken advantage of. Employees could steal supplies and you would not know. Prices of merchandise could rise without your knowledge and this would really strain your budget. For example, one client we helped by creating her first ever cash flow analysis was paying her employees about 20% more than industry average. While this is a generous action it wasn’t sustainable. She did not realize this wage discrepancy was hurting her cash flow and ability to successfully finance her small business.

Common Mistakes Small Business Owners Make

When small business owners don’t feel like they have the expertise to manage their finances they let their accountant do everything. This blind trust could lead to problems of fraud or theft. If your small business financials are handled by an accountant, double-check everything they do. You don’t have to be a tax guru to see if something doesn’t look right.

When small business owners don’t keep physical copies and records. You should keep copies of everything in a safe place for future reference and insurance. If you don’t keep copies of your tax returns, you could be unaware of money you owe. This is why the IRS may place a lien on your business that would severely damage your chances of getting a loan.

When small business owners try to tackle payroll by themselves. Payroll is going to be any business’ biggest expense. Payroll also carries a high potential for tax errors. Investing in someone to manage payroll will be a worthwhile cost.

When small business owners extend credit to customers. If you extend credit to your customers, you run the risk of them not paying what they owe. Additionally, providing a service or a product before payment hurts your cash flow because you are relying on that payment to run your business. The exception is reliable, expected industry delays. For example, Walgreens may take up to 90 days to pay.

When small business owners assume automatic transformation of inventory to cash. When you buy a new machine or order new merchandise, it does not instantly turn into profit. A lot of small business owners mistakenly overestimate how soon products will sell or how soon they will see an increase in sales.

When small business owners, especially new immigrants, misreport on their taxes. Because you don’t want to pay a lot in taxes, you may be tempted to underreport profits or overreport losses. This is a bad idea because it will hurt your chances of getting outside financing and could get you in trouble with the IRS. It is better to work with a tax specialist to minimize your tax liability.

5 Tips To Manage Your Business’ Cash Flow Better

    1. Start with creating a profit and loss statement. Just check your business’ bank statement. In a spreadsheet or with your accountant, document every financial transaction including rent, utilities, payroll, supplies, loan/credit interest, insurance, and sales. Keep copies of all these bills.
    2. Keep all your paperwork organized, such as any invoices, tax returns, receipts, etc. The first thing lenders ask for is documentation. Opportunity Fund often finds that many small business owners don’t know their monthly sales average and would have to go look it up.
    3. Always save some of your profits. Don’t reinvest it all, because you need emergency funds. We recommend reserves that can support all your expenses for at least six months. You might need more cushion if your business industry is seasonally dependent such as taxes, ice cream, tourism, gyms, jewelry, etc.
    4. On an annual or semi-annual basis, review who you’re paying and what, like vendors and employees. Shop around for the best deal – just like you would for any personal purchase.
    5. Once you’ve started looking at your cash flow, keep track of it on a monthly basis for any changes.

Opportunity Fund’s Mission Driven Lending Helps You

Traditional banks may provide the lowest interest rates, but banks are also the hardest to qualify for. Unlike banks, Opportunity Fund looks at the person behind the numbers. Our goal is your success, so we want to make sure you have the best chance to get an easy-to-get, affordable loan.

Banks only look at official income reported to the government, such as on your W-2. Opportunity Fund includes any additional income you have in our analysis. We makes sure your sales cover all business and personal expenses with a cushion to weather slow times.

If you have an outstanding loan and are looking to refinance it, we use your current minimum payment. Traditional banks will calculate a new minimum payment based on the maximum you can pull out. If your credit card has a limit of $10,000, the bank will assume you maxed it out. This can really limit your cash flow.

Banks will want annual tax statements after they grant you a loan to review if you are at risk of defaulting on the loan. If your business shows a decline, they may “invite” you to pay it all off immediately and find financing elsewhere. Opportunity Fund doesn’t do this. Once we approve your business for a loan, we trust you.

Opportunity Fund has proven that with less documentation and more real conversations, we can still give loans and have good repayment from our clients. We are helping the whole alternative lending industry understand that helping small business owners like you by offering responsible loan options works even if you are classified as high-risk by traditional banks.

For information about Opportunity Fund’s small business loans, please contact us at 866-299-8173 or loans@opportunityfund.org.  For questions about your existing loan or other customer service questions, please contact us at 866-299-8173 or sbhelp@opportunityfund.org.


Opportunity Fund is California’s largest and fastest-growing nonprofit lender to small businesses. In FY16, we made $60M in loans to help more than 2,200 small business owners invest in their businesses.  Opportunity Fund invests in small business owners who do not have access to traditional financing. As a founding member and signatory to the Borrower’s Bill of Rights, we believe in the important role small businesses play in our community and the economy, and we aim to help owners financially succeed.

Visit us online at opportunityfundloan.org and follow us on Facebook and Twitter

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