Financing Cash Flow Peaks And Valleys

For many businesses, financing cash flow can be like riding a continuous roller coaster.

Sales are up; then they go down. Margins are good; then they flatten out. Cash flow can swing back and forth like an EKG graph of a heart attack.

So, how do you finance cash flow for these types of businesses?

First, you need to know and manage your monthly fixed costs accurately. Regardless of what happens during the year, it would be best if you were on top of what amount of funds will be required to cover the recurring and scheduled operating costs that will occur whether you make a sale or not. Doing this monthly for a twelve-month cycle provides a basis for cash flow decision-making.

Second, from where you are now, determine the number of funds available in cash, owners’ outside capital that could be invested in the business, and other outside sources currently in place.

Third, project your cash flow so that fixed costs, existing accounts payable, and accounts receivable are realistically entered into the future weeks and months. If cash is always tight, do your cash flow every week. There is too much variability over a single month to project out only every month.

Now, you have a basis for assessing financing your cash flow.

Financing cash flow will always be somewhat unique to each business due to industry, sector, business model, stage of business, business size, owner resources, etc.

Each business must self-assess its sources of financing cash flow, including but not limited to owner investment, trade or payable financing, government remittances, receivable discounts for early payment, deposits on sale, third-party funding (line of credit, term loan, factoring, purchase order financing, inventory financing, asset-based lending, or whatever else is relevant to you).


Ok, so now you have a cash flow bearing and a thorough understanding of your options available for financing cash flow in your specific business model.

Now what?

Now, you are in a position to entertain future sales opportunities that fit into your cash flow.

There are three points to clarify before we go further.

First, financing is not strictly about getting a loan from someone when your cash flow needs more money. It’s a process of keeping your cash flow continuously positive at the lowest possible cost.

Second, you should only market and sell what you can cash flow. Marketers will measure the ROI of a marketing initiative. But if you can’t cash flow the business to complete the sale and collect the proceeds, there is no ROI to measure. If you have a company with fluctuating sales and margins, you can only enter into transactions you can finance.

Cash Flow Management: A Guide for Small Businesses - Finmark

Third, marketing needs to focus on customers that you can sell to over and over again to maximize your marketing efforts and reduce the unpredictability of the annual sales cycle through regular repeat orders and sales.

Marketing works under the premise that if you provide what the customer wants, the equation’s money side will take care of itself. In many businesses, this indeed proves to be true. But in a company with fluctuating sales and margins, financing cash flow has to be another criterion built into sales and marketing activities.

Over time, virtually any business has the potential to smooth out the peaks and valleys through a more robust marketing plan that better lines up with customer needs and the business’s financing limitations or parameters.

In addition to linking financing cash flow more closely to marketing and sales, the next most impactful action you can take is expanding your sources of financing.

Here are some potential strategies for expanding your sources for financing cash flow.

Strategy # 1: Develop strategic relationships with key suppliers that can extend greater financing in certain situations to take advantage of sales opportunities. This is accomplished with larger suppliers that 1) have the financial means to extend financing, 2) view you as a key customer and value your business, and 3) have confidence in the business’s ability to forecast and manage cash flow.

Strategy # 2: Make sure, that your annual financial statements show a profit capable of servicing debt financing. Accountants may be good at saving your income tax dollars. Still, if they drive business profitability down to or close to zero through tax planning, they may also effectively destroy your ability to borrow money.

Strategy # 3: If possible, only transact with creditworthy customers. Credit-worthy customers allow both the business and potential lenders to finance receivables, increasing the amount of external financing available.

Strategy # 4: Develop a liquidation pathway for your tangible assets. Equipment and inventory are easier to finance if lenders clearly understand how to liquidate the assets in the event of default. In some cases, businesses can get resale option agreements on certain equipment or inventory from prospective buyers assignable to a lender to be used as recourse against a lending facility for financing cash flow.

Strategy # 5: Joint venture a sales opportunity with another business to share the risk of a large sales opportunity that may be too risky for you to take on yourself.


The primary long-term objective of a business with fluctuating cash flow and margins is to smooth out the peaks and valleys and create a scalable business with more predictable sales cycles.

This is best achieved with an approach that includes the following steps.

Micro-Manage your fixed costs and cash flow and accurately project out the business’s cash flow requirements every week.

Take a detailed inventory of all your sources for financing cash flow.

Incorporate your financing constraints into your marketing approach.

If possible, only transact with creditworthy customers to reduce risk and increase financing options.

Work towards expanding your financing sources and available source limits for financing cash flow.

Business cycle stability and cash flow predictability are evolutionary steps for every business. The industries with longer sales cycles will tend to be the more difficult to tame due to many variables.

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I work for WideInfo and I love writing on my blog every day with huge new information to help my readers. Fashion is my hobby and eating food is my life. Social Media is my blood to connect my family and friends.
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