Every business owner knows that staying on top of cash flow is extremely important to the health of a company. No business owner is going to purposefully wreck his or her cash flow. But accidentally? That's another story.

Still, there are many common reasons why your cash flow can end up not flowing in the way you were predicting. You might want to ask yourself if you're doing the following.

1. Make sure there's room in your short-term budget for error.

This is a common cash-flow blunder, and it's understandable how it happens. You have a plan to generate revenue, but things are not always going to go to plan. Unfortunately, you have to plan for that, too. If you've left no margin for error, you're practically begging for issues with your cash flow.

Sean Pour is the co-founder for SellMax, a nationwide car buying service. Since his company's founding in 1990, “we've definitely had our fair share of cash-flow projection mishaps," Pour says.

"We had spent a significant amount of our advertising budget on a Google AdWords campaign, and we managed to capture hundreds of emails," he says. "Typically, around spring cleaning time, many individuals want to sell us their non-working cars. So, we started our email marketing campaign at that time, and we expected the calls to come flooding in. We had estimated that we would recoup our advertising costs and have a steady stream of cash flow coming in, but it was a big bust."

While the bust didn't break the company, Pour says that SellMax had a projected rate of growth that they were aiming to hit each month. They didn't.

“We were never hurt so much at the time that we needed a business loan. But for several months, we were a bit timid and more afraid to make moves [that] we would have normally done," he says. “To help manage the cash flow, we stopped spending on someone of our experimental advertising because we just couldn't afford to lose. We focused on sure wins."

2. Remember that this year won't be exactly like last year.

If you're having constant problems with your cash flow, you may need to tweak your cash-flow forecasting, according to Riley Adams, a licensed CPA in the state of Louisiana who works as a senior financial analyst for a tech company in the San Francisco Bay Area. (He also has a blog, Young and the Invested, aimed at Millennials seeking financial independence.)

Your best chance of success starts with realistic revenue and expense forecasts and a commitment to monitoring the budget monthly. Overly optimistic revenue forecasts are usually the problem if cash flow begins to turn negative.

—Robert Morlot, managing partner, Clearwater Business Advisers

Adams points out that each year's cash flow is different. Hopefully your cash-flow plan for this year has accounted for that.

“Culprits [in 2019] include a maturing economic cycle, tariff battles, interest-rate movements, slowing corporate profit growth and numerous other signs of a wearing expansion," Adams says. "When companies make cash-flow projections for the coming year, they tend to assume a continuation of previous conditions or in some way extrapolate from the baseline comparison over multiple previous years." 

That assumption is prudent, he adds, but factors need to be considered in a cash-flow forecast, such as “project delays, slower hiring, expense reductions and generally a less growth-oriented business plan."

And if you see risk in the air, Adams suggests delaying ambitious growth initiatives until your cash-flow forecast looks more certain.

3. Study your clients' cash flow as well as your own.

Akiva Goldstein is the CEO of Onsitein60, a technology and support services company headquartered in New York City. The serial entrepreneur has two other businesses: Flat Rate Network Cabling, a contractor cabling company, and Your Could Provider, a cloud-based IT solutions company.

If you really want to know how your cash flow is going to go over the next several months or next year, Goldstein suggests paying attention to your clients' cash flow. 

Alas, you can't drop by your clients' headquarters and request to see their books. Still, observe what your clients are doing in your interactions with them, and you may be able to hazard a reasonable guess as to what their financial health is. Then you can factor that into your own cash flow.

For instance, Goldstein and his employees have learned that even though they're typically very busy during the summer and holidays, there will invariably be a lot of cancellations as well because their clients are busy, too. 

“Not much we can do about it," Goldstein admits. “Except plan for it."

Another process, which Goldstein calls, “Client Health Guesstimates," has been helped them improve their own cash flow.

“Although we know nothing tangible about a client's financial health, if their behavior changes, their cash flow and financial standing may have changed, either temporarily or permanently, which would affect our ability to get paid, or even retain the client in our roster," Goldstein says.

According to Goldstein, some red flags are:

• A client who always pays on time, and now is falling behind.
• A client paying a newer and smaller invoice rather than their larger older invoices.
• A client who isn't willing to spend money up-front that will bring them a long-term cost savings.
• A client who suddenly seems to be assuming more risk.
• A client who does, well, anything that doesn't follow his or her previous history.

If you see the signs, again, you may not be able to do much about it, but those are cues to be cautious with your spending, so that your cash flow doesn't go out of whack. 

Again, this goes back to leaving room for error. Remember: Even if you've had a great (or bad) run recently, things may be about to change. Cash-flow analyses should always be evolving because nothing stays the same.

4. Make sure your yearly budget is realistic—maybe even a little gloomy.

Take the financially conservative approach and veer towards a pragmatic and pessimistic budget over an overly rosy one, according to Robert Morlot, managing partner of Clearwater Business Advisers, a management consulting firm in Tampa, Florida.

“Your best chance of success starts with realistic revenue and expense forecasts and a commitment to monitoring the budget monthly. Overly optimistic revenue forecasts are usually the problem if cash flow begins to turn negative," Morlot says.

He suggests trying to see what economists are saying about your industry when coming up with a budget and doing cash-flow forecasting. That's where a little pessimism can come in handy.

“When putting together the yearly plan, consider doing a risk assessment—asking the question, 'What could go wrong?'" Morlot suggests. “The possibility of losing a large customer or incurring a major expense will help you head off problems during the year if you have a contingency plan."

This can't be said enough: Plan for the worst, and hope for the best. It's all the better if your cash flow works out so that you have more money coming in than what you expected. 

You probably won't kick yourself for having access to a line of credit it never uses. And the same goes for only relying on your business credit cards to bring in cash back to reinvest in your company, rather than using them to keep your company from running out of working capital. But you may have some regrets if your revenue is dismally lower than what you believed it would be, and you find yourself half wondering if you need to take on a side gig to make ends meet.

Not that you want to delude yourself. (“Wow, we predicted $12.87 this year, and we wound up a surplus of $2.3 million. Who would have thought?") You want an accurate, realistic budget so you can make informed decisions and invest in your business and grow your company and brand. 

But you can't do that without carefully monitoring your money coming in and going out. Sure, a solid infrastructure, a good marketing plan and amazing customer service are all very important. But if you want a healthy business, you need to keep your cash flow healthy.

Read more articles on managing money.

Photo: Getty Images

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