Karina Shevchenko

Are you familiar with the feeling of fear that comes with the arrival of payday tomorrow, and there are only a few hundred hryvnias left in your bank account? Do you panic when important suppliers demand payment, and you don't have enough funds?

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Every entrepreneur has faced such situations in the course of their activities. Why does a lack of funds occur at crucial, sometimes decisive moments, and how can this be prevented?

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This dreadful scenario is called a cash gap — a situation where there is not enough money to cover the current obligations of the business.

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Such a problem threatens bankruptcy and debts. Cash gaps can lead to unpleasant consequences beyond the company: decreased sales, damage to the company's reputation, conflicts with suppliers, tension within the team, staff changes, penalties from suppliers and banks, and production delays.

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This article aims to help entrepreneurs permanently eliminate cash gaps. We will consider five key tips that will help ensure your business's financial stability, avoid stress related to a lack of funds, and create a solid foundation for sustainable growth.

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By following these recommendations, you will be able to effectively plan cash flows, control expenses, optimize accounts payable, create financial reserves, and increase revenues.

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Being proactive is the most effective way to combat cash gaps.

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Where to start in combating cash gaps?

1. Plan Cash Flows

The Importance of Planning

Regular cash flow planning is critical for anticipating and preventing potential cash gaps. According to data from Minutes.co:

82% of small businesses fail due to cash flow problems.

Forecasting

‍Make forecasts of income and expenses for future periods. This helps you better understand when cash gaps may occur and prepare for them in advance. According to a study by JP Morgan Chase:

The average small business has only 27 days of cash reserves.

2. Control Expenses

Expense Analysis

‍Regular analysis of expenses helps identify areas where savings can be made. Evaluate if expensive supplies can be replaced with cheaper alternatives without losing quality. For example, using more economical materials or optimizing production processes can significantly reduce costs.

Prioritization

Prioritize expenses that directly impact your income. Investing in raw materials, research and development, marketing, and staff training can directly increase sales and improve product quality. Reduce spending on less critical aspects of the business, such as unnecessary administrative fees.

Implement Flexible Budgets

According to Harvard Business Review:

Companies that adopt a flexible budgeting approach in constantly changing business environments are more likely to avoid financial difficulties.

Use of Technology

‍Modern technologies can help track and optimize expenses. Use financial management software that automates processes and provides accurate expense reports. According to McKinsey:

Implementing digital solutions can reduce costs by up to 30%.

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3. Optimize Accounts Payable

Payment Terms

Negotiate longer payment terms with suppliers, if possible. This approach allows more funds to remain in your accounts to cover current expenses. Regularly review your cooperation terms with suppliers and look for better options.

Process Automation

‍Use financial software to automate the management of accounts payable. This helps avoid errors and ensures timely payments.

Setting Priorities

Prioritize debt repayment based on its importance to your business. Pay off those debts first that could cause the most significant problems if payments are delayed.

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Tracking Debt

Regularly monitor the status of accounts payable. This helps avoid unexpected expenses and allows you to respond promptly to potential issues. Consider using analytical tools to forecast future financial needs and plan payments.

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Experienced entrepreneurs use a payment calendar for this purpose. It acts like a "vaccine against cash gaps."

What is a payment calendar?

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A payment calendar is a tool for financial planning of cash flows in a business. It is usually created for a month with weekly breakdowns or for a longer period suitable for your business.

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It outlines expected income and expenses for a specific period, allowing the business owner to assess the company's ability to meet financial obligations on time.

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A payment calendar can be maintained in homemade Excel spreadsheets, which is quite inconvenient and time-consuming. An alternative option is automated financial programs.

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The convenience lies in the fact that all pre-scheduled payments are automatically included in the calendar, and it is possible to immediately see potential future cash gaps.

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There is no need to manually enter all account balances, income, and expenses every month. Thanks to integration with banks, all data is automatically pulled in.

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Working with the Finmap Calendar is done in just a few clicks:

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1. Enter all planned expenses into the service: rent, salaries, taxes, etc.
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2. Enter planned income: payments from clients, repayment of accounts receivable, etc.

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A short video will help you understand the useful functions of the payment Calendar.

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Now, in the payment calendar, you can clearly see during which periods you might experience a cash gap and preempt it by rescheduling or canceling payments, negotiating with clients for earlier payments, etc. This visibility allows proactive management of your cash flow to avoid financial strain.

4. Use Financial Reserves

Creating Reserves

‍Establish a reserve fund to cover unexpected expenses. This helps prevent cash gaps during sudden financial difficulties. Financial experts recommend having reserves sufficient to cover expenses for three to six months.

Investments

Consider investing a portion of your profits in liquid assets that can be quickly converted to cash if needed.

Diversification of Reserves

‍Spread your reserve funds across different accounts and assets to reduce risks. For example, keep some funds in savings accounts, some in bonds, and some in other liquid investments.

Regular Review of Reserves

Regularly review and update your financial reserves to ensure they meet your business's current needs. This helps you be prepared for any financial challenges and avoid cash gaps.

5. Increase Revenues

Marketing Strategies

Implement effective marketing strategies to attract new customers and increase sales. Utilize SEO, social media, and other channels to enhance brand visibility.

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Investing in quality content marketing can significantly boost website traffic. Additionally, retargeting ads can reclaim up to 26% of visitors who have previously visited your site, increasing conversion chances.

Diversification

Consider diversifying your product or service offerings to reduce risks associated with dependence on a single income source.

Partner Programs

Implement partner programs to acquire new customers through existing partners. This can expand your market significantly without substantial marketing costs. According to Forrester:

Companies using partner programs can generate up to 15% of their total revenue through these channels.

Customer Loyalty

Invest in loyalty programs to retain existing customers. Bain & Company reports that:

Increasing customer retention by 5% can lead to revenue growth of 25-95%.

Consider implementing discounts, bonuses, and special offers for loyal customers to encourage repeat purchases.

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Avoiding cash gaps is a key aspect for sustainable business development.

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Implementing these five strategies will help ensure financial stability and mitigate the stress associated with cash shortages.

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Plan cash flows, control expenses, optimize accounts payable, create financial reserves, and increase revenues.

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By utilizing these strategies, you can minimize financial risks and ensure the prosperity of your business, while Finmap simplifies the process with its user-friendly payment calendar.

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In addition to the payment calendar, Finmap allows you to:

• Monitor income and expenses through bank integrations.
• Aggregate data and operations across various projects, categories, contractors, and counterparties.
• Easily analyze finances and profits through intuitive graphs rather than complex reports.

Forget about the nerve-wracking tension caused by financial management. Discover what organization and transparency in business finances really mean!

Have you ever wondered where the money goes when it seems like your business is booming? Do you ever get lost in the numbers and can't figure out where the profit is?

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A lack of clear financial control can lead to a loss of funds and growth opportunities. That's why a profit and loss statement (P&L) is an indispensable tool for every entrepreneur. It helps you see hidden problems and find ways to solve them, ensuring the sustainable development of your business.

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Why is a profit and loss statement necessary for business?

Assessment of financial performance

A profit and loss statement allows you to assess the financial performance of your company in detail. You can see whether you have achieved your financial goals by comparing income and expenses.

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For example, a restaurant owner can use this report to determine which dishes bring the most profit and which ones should be removed from the menu.

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According to a study by the U.S. Bureau of Labor Statistics:

About 20 percent of small businesses close within the first year, 30 percent within two years, and 50 percent within five years, largely due to a lack of financial control.

Budgeting and strategic planning

With a regular profit and loss statement, you can plan your budget more effectively and develop development strategies.

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For example, a company may find that it spends too much on marketing and redirect these funds to innovation or staff training.

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According to a study by CB Insights:

One of the main reasons startups fail is a lack of proper financial planning and management, accounting for up to 39% of all failures.

Monitoring and controlling expenses

The income statement helps to identify excessive costs and find ways to optimise them. It provides an opportunity to respond to cost increases in a timely manner and take measures to reduce them, which helps maintain the company's financial stability.

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Thanks to cost analysis, Dmytro Sheremeta, owner of Chistota cleaning company, saved $12 500 a year.

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Dmytro's company has always strived to provide high-quality cleaning services, using the necessary equipment, such as vacuum cleaners and ladders, which had to be delivered to the place of service. The cost of this delivery was usually included in the total price of the service. To transport the equipment, the company often used taxis, which resulted in unpredictable logistics costs depending on weather conditions, days of the week, and current taxi demand.

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After analysing the costs using the profit and loss statement in Finmap, Dmitriy discovered that the company's logistics costs were higher than expected. Together with his team, he started looking for ways to reduce these costs. After careful analysis, it was decided to change the type of delivery and find a partner who transports goods using electric scooters.

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This approach not only reduced delivery times, but also eliminated the dependence on fuel prices, making the cost of transportation more stable.

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Before the cost optimisation, one round trip delivery cost the company $9, while after the implementation of the new logistics strategy, the cost dropped to $2.5. This has significantly reduced logistics costs and increased the company's efficiency.

Reporting to stakeholders

Investors and lenders pay attention to the income statement when assessing a company's financial position. This is especially important if you are planning to attract investments to scale your business. Reliable financial statements increase your attractiveness to investors.

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The income statement is an indispensable tool for every entrepreneur. It provides a clear picture of the company's financial position, helps to identify hidden costs and optimise resources. Using this report allows business owners to plan effective strategies, make informed decisions based on real data, and ensure business stability and growth in the long term.

How to create a high-quality Profit and Loss report?

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A well-crafted income statement is the foundation of your business' financial health. It not only helps you understand the current state of affairs, but also opens up new opportunities for growth. To make your report as useful as possible, follow these key steps:

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1. Select the reporting period. Determine the period for which the report will be prepared. It can be a month, quarter, or year, depending on the specifics of your business and industry standards.
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2. Gathering financial information. Gather all the necessary financial data: revenues, expenses, operating profit (or loss), interest, taxes, and other financial indicators. It is necessary to collect not only the movement of funds on official accounts, but also on cash desks, cards, wallets, etc.
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3. Classification of income and expenses. Carefully classify all income and expenses by their purpose and nature. The main income (from the sale of goods or services) and additional income (from investments, licences, etc.) should be separately identified. Expenses should be divided into categories, such as salaries, materials, marketing, administrative expenses, etc.
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4. Calculate the net profit (or loss). Subtract total expenses from total revenue to calculate net profit or loss. This indicator is critical for assessing the company's financial position.
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5. Comparison with previous periods. Compare the results of the reporting period with previous periods to identify trends and analyse the dynamics of financial indicators.
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6. Prepare an analytical report. After preparing the main income statement, prepare an additional analytical report that contains detailed information on individual components of income and expenses, as well as an explanation of the reasons for changes in financial indicators.
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7. Visualise the results. Use visualisation tools to improve understanding and ease of perception of financial information. Charts and dashboards help you quickly assess the company's financial position.
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Additional tips:

• Retrospective analysis. Compare results with previous periods to identify trends and predict future expenses and income.
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• Market analysis. Take into account changes in the economic environment and market trends that may affect the financial performance of your business.
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• Distribution of money. Separate your own funds from business funds. This will avoid the very common mistake of mixing finances.
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• Professional approach. Take the advice of a professional financier for qualified quick advice on setting up accounting. If you do not have the funds for ongoing support, the first consultation will set the owner on the right track.
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• Technological solutions. Use modern tools to automate financial accounting. For example, Finmap integrates with banks and payment systems, simplifying the process of data collection and analysis.

By following these steps and income statement standards, you will get a clear and objective view of your company's financial position. This will allow you to manage your business more effectively and make strategic decisions that will contribute to its growth and stability.

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For maximum convenience and efficiency, automate your accounting with Finmap and forget about complicated home-made spreadsheets. Finmap integrates with banks and payment systems, providing you with convenient graphs and dashboards that greatly simplify analysis and make informed business decisions.

User case card

Serious Development Agency IT company — development of mobile applications and sites for startups.

Web site: https://sda.company

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Alex Shubin — the founder of Serious Development Agency IT company.
Has 12 years of programming experience.
He started his cash flow management with Finmap 1,5 years ago.

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How can an owner of an IT company keep money in order in business if he works 17-19 hours per day and has literally no free time? And what if the company is located in Ukraine and, like most entrepreneurs today, he needs to take care of the team’s safety and continue to develop the business in conditions of total instability?

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You could postpone the task until better times. Or you could lay the foundations for systematic accounting now by understanding the numbers, seeing the current state of affairs clearly, and making confident decisions about the future based on the data. Alex, the owner of the IT company Serious Development Agency, chose this way.

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In this case, we will tell you how he managed to find the time and what results he achieved.

Given

The IT company, Serious Development Agency, has been developing mobile applications and websites since 2019. There are 16 people in the team, and they continue to grow. The number of projects and tasks from clients is also increasing.

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If you don’t keep organized cash flow management, it is easy to drown in the chaos of incomes, outgoings, regular payments and debts. That’s why Alex, the founder of the company, decided that it was necessary to implement systematic cash flow management.

I decided to get my business in order after all. Because I realized that I don’t understand what’s going on, how much money I could get out and so on. — Alex Shubin, founder of Serious Development Agency

Task

We always say, keeping track of the cash flow for the sake of keeping track is a mistake. Therefore, before you systematically put your money in order, you need to determine why you need to keep track of it and how cash flow management will help you grow your business. Alex has set himself these objectives:

• Get rid of the financial mess.

Clearly understand how much the company earns, how much dividends you can collect, and what is going on in your business.

• Monitor your account balances and planned incomes.

It is to see how much money is there right now and how much you can expect in the future.

• To save time.

Alex works 17-19 hours a day now. He doesn’t have enough time to focus on managing the cash flow.

In general, there is more work now, because we are constantly hiring more employees and have to pay attention to them. Plus, we must devote more time to customer service in order to reassure our clients that even in spite of the war we are able to meet their needs. — Alex Shubin, founder of Serious Development Agency

• To keep track of your cash flow in a systematic yet simple way

When I was entering everything into Google spreadsheets, I realized that there were some things I might overlook and not take into account. You need to spend some time setting it up, the same reports and so on. And since I understand that time is money, it’s easier for me to keep all the documentation in one place and have multiple options to run different reports, integrations… — Alex Shubin, founder of Serious Development Agency

Alex decided to implement Finmap to solve his business matters.

Solution

Alex first tried Finmap a year and a half ago. However, he did not manage to fully apply the features of the service to his business then and switched to another product. But Alex found many bugs that made his work more difficult. So he decided to go back to Finmap again

Why Finmap — because I was already a user. I had taken courses from both Ivan and Oleksandr*. — Alex Shubin, founder of Serious Development Agency

‍* Ivan Kaunov and Oleksandr Solovey are both co-founders of Finmap. Ivan led the course «Finance in plain language». Over time we expanded and supplemented the information, which resulted in Oleksandr Solovei’s «Business Money» course on how entrepreneurs can get from chaotic finances to a system in just 5 steps.

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With the service, Alex decided to use the help of a Finmap financial expert* straight away to save time on set-up and to see the focus points in cash flow management for his company.

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* Our users can request the help they need from Finmap’s financial experts and choose an assistant, manager or mentor. You can book free consultation and find out more about this service.

The first thing Alex did was to connect and add all the company’s accounts to Finmap, so he could see all the balances he have at the moment on one screen.

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The next step is to synchronize with Privatbank and the Wise money transfer system. So that all incomes and expenses are automatically uploaded to Finmap and displayed in the financial reports.

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The synchronization:

• saves time on manual data entry;
• makes keeping track of accounts easier;
• eliminates the risk of losing a particular payment.

Even small expenses that are often overlooked (such as transfer fees or payments for app and service subscriptions) will be taken into account automatically. As a result, users get a more accurate picture of the company’s financial situation.

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As one of Alex’s tasks was to understand how much the company earns, he paid particular attention to the Profit and Loss statement ( P&L)*.

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* The P&L statement shows a company’s profits and losses for a specific period, e.g. a month. It is generated automatically in Finmap based on the data entered by the user and fed into the service through integrations with banks and other services.

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Alex also plans to introduce regular maintenance of the payment Calendar* to control future income and to track upcoming expenses in advance.

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* By adding future expenses and incomes to Finmap, the user will see them in the Calendar and will be reminded to make the planned payment or collect client debt in a timely manner.

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Plus, the Calendar will show whether there is enough money to cover all expenses for a particular date or if there is a risk of a cash gap (a temporary situation where a business does not have enough money to cover all necessary expenses).

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However, the founder of Serious Development Agency also informed us of a feature of particular concern for his business.

I have this issue. I receive one payment, but this payment is allocated for several people at once. I have to split it up manually every time and calculate how much of this payment relates to one specific project and how much to another? It would be cool if we had a large payment coming in, and we could specify that a certain amount of money from that payment applies to a specific project. — Alex Shubin, founder of Serious Development Agency

Our development team is now actively working on implementing the functionality that Alex is missing. This feedback is vital to us as it helps us develop Finmap tools that our users can use to manage their specific financial needs more efficiently.

What’s the result

• Alex sorted out the mess in his finances and set up systematic cash flow management.

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With Finmap financial expert Karina, Alex was able to sort out what was going on in the company in January-February, including when the war in Ukraine began.

We set everything up, looked at what was happening between January and February and now there is an understanding of the numbers. — Alex Shubin, founder of Serious Development Agency

• Thanks to the connected integrations, the transfer of transaction data is automated; Alex doesn’t have to transfer it manually and spend time on it.

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• It is possible to see financial reports in a couple of clicks and understand what’s going on in the business. Reports are generated automatically in the form of easy to understand graphs and charts. There is no need to waste time putting tables together and then trying to make sense of dozens of columns of numbers.

Graphs are quite useful. You can even present the data in percentages in them. — Alex Shubin, founder of Serious Development Agency

The P&L report is also important to Alex because it allows him to easily track the company’s profits.

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• Alex plans to use a payment Сalendar within Finmap to monitor future incomes and expenses (e.g. to plan tax or loan payments).

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Most importantly, with his finances under control, he can now monitor the growth of his business. After all, as Alex says:

If we work in times of war, even from basements, what else can stop us?

Are you the owner of an IT company? Understand the finances of your business, clearly, see the profitability of each product/project, and accurately calculate your investments in new product development with Finmap.