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A business lives as long as there is money in the accounts. An advance payment has been received, a contract has ended and the buyer has paid - it seems that there is enough money for everything. But as soon as you transfer a deposit to the supplier, pay the salaries of employees, pay a couple of state fees and close the lease - there is no money in the account again, and no one has cancelled the next payments. When an entrepreneur must pay more than he currently has, he ends up with a cash gap.

A cash gap is a lack of funds to cover necessary expenses. The entrepreneur owes more than what is in the accounts.

Such a situation is always unpleasant. To save their business, entrepreneurs have to conduct difficult negotiations with counterparties, look for additional financing or risk their business reputation. We will help you avoid mistakes and tell you why cash flow gaps occur, how to predict and avoid them.

How does a cash flow gap arise?
The gap occurs regardless of the profitability and scale of the business. It gets to the point where a multi-million dollar company does not have enough money for the smallest operations. There is one reason for this - the desynchronization of the receipt and expenditure of funds. That is, the money comes later than it was needed. This can happen in one of three cases:

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Working with suppliers on a prepayment basis. At the beginning of a business, there is not enough money for long-term contracts on deferred payment. Often, after purchasing, the entrepreneur has no money left for anything. Own funds melt away before our eyes, and future expenses inevitably arise.

Arkady ordered a batch of wireless headphones from China and agreed on the sale with Mark, a buyer of a retail chain. Arkady bought the entire batch, the Chinese supplier gave a good discount for prepayment, received the money and sent the goods. Mark will pay when he receives the headphones at the warehouse. But customs delayed the delivery for a week. The goods are there, they will definitely pay for them. But no one has canceled Arkady's mandatory payments for office rent, which he risks missing due to the delay.
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Working with customers on a deferred basis. Large companies work on deferment: retail chains, the largest companies in the country and state corporations. They depend on a complex budgeting system and cannot pay small suppliers in fact: federal chains pay 1-2 months after delivery, state corporations - once a quarter, the state - at the end of the calendar year.

In May, Arkady signed a contract to supply headphones to a federal online store. He will receive money two months after shipment - in July. Now the amount of the supply is frozen in accounts receivable. In order to pay suppliers or pay taxes, Arkady will have to look for additional sources of financing.
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Specific or seasonal business. Companies with irregular cash flow are especially susceptible to cash flow gaps: tender participants, suppliers of single large customers, seasonal companies. This situation often occurs when several weeks or months pass from the moment of meeting the customer until receiving payment. If there is no constant inflow of funds, then distributing them becomes very difficult. Even one minor expense can drive an entrepreneur into debt.

Ice cream production has a clear seasonality - revenue in the summer covers the costs of the cool months. The closer to the high season, the less money in the account. You can't count on additional injections, and every ruble wasted can send the company into a cash flow gap.
The worst thing is when these situations coincide - you have to prepay for raw materials, wait for payment from customers and settle taxes so that the accounts are not frozen. Such coincidences can put the company out of business, so they need to be systematically calculated.

Signs of a cash flow gap
Entrepreneurs who keep a cash flow statement (CFS) are guaranteed website development service to see a future gap in negative final indicators. We described how to draw up a CFS in a separate article . Here we will focus on indicators that will help predict the situation and protect the company.



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The easiest way is to calculate your cash balance daily.

End of day cash = Beginning of day cash + Customer receipts - Supplier payments

Calculating this indicator for two weeks ahead will show which days the company is on the verge of a cash flow gap. This will give you a reserve of time during which you can prevent a crisis situation.

Calculation of a cash gap in which negative balances indicate its occurrence.
Date Cash at the beginning of the day Receipts from buyers Payments to suppliers Cash at the end of the day
June 13, 2017 +100,000 ₽ +20,000 ₽ -60,000 ₽ +60,000 ₽
June 14, 2017 +60,000 ₽ +20,000 ₽ -60,000 ₽ +20,000 ₽
June 15, 2017 +20,000 ₽ +20,000 ₽ -60,000 ₽ -20,000 ₽
June 16, 2017 -40,000 ₽ +60,000 ₽ -20,000 ₽ 0 ₽
How to Prevent a Cash Flow Gap
A cash gap is not fatal - it is a working situation. An entrepreneur can cover it with an overdraft or factoring, borrow money from a bank or fall into arrears. But these options eat up the margin, deprive the businessman of profit and spoil his reputation. We recommend resorting to them only in extreme cases. To avoid a gap, you need to:

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Organize financial planning. The first and most important piece of advice is to keep track of your money. Create a cash flow budget (CFB)
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Write down in it when and how much you owe and are owed. This way you will see possible cash flow gap situations in advance.
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Manage accounts receivable and accounts payable. Always try to get paid before you have to pay. Ask for installments from suppliers and prepayment from buyers. It is better to let the money settle in accounts where it can be easily withdrawn. Everything can be negotiated - we will tell you how to do it next time.
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Maintain easily marketable inventory. As a last resort, sell what is easiest to sell - your most liquid assets. This will unfreeze your money and pay off your creditors.
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Maintain a constant cash flow. It is easier for companies that have many, albeit small, transactions to live. Maintain constant turnover on the current account. If the business model allows it, sell goods at retail, work with small contractors. The more diversified your income, the more stable it is.
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