As a business owner, the best way to be prepared is to have either a 13-week rolling cash flow forecast or a 12-month rolling cash flow forecast. The 12-month rolling cash flow forecast is better as it gives a longer-range view with more “what if” analysis capability, which gives the business owner the ability to not only know a cash flow problem is coming but time to avert it.

However, when the business owner does not forecast, they can get blindsided by cash flow problems.

As a CFO consultant one of the first things I tell my clients is that in order to successfully get through a cash flow problem you must be in control of each vendor situation. Most business owners when they are in a cash flow problem do not communicate with their creditors.  

They remain silent and in hiding and as a result the creditors are making the phone calls to them and dictating their various demands for payment. The best course of action is to prepare a 13-week rolling cash flow forecast because looking at the short term view during a cash flow problem is the most prudent thing to do. With the 13-week rolling forecast you can determine how much free cash flow is available to pay bills. Then the next step is to determine the absolute "must pays," making the top on that list are payroll, payroll taxes, sales taxes and any other fiduciary taxes. After that, create payment plans for the creditors so that everyone gets not everything but at least something. Finally, communicate with the vendors as early as possible letting them know how much and at what time you are going to pay them.

Usually when you handle the situation in a proactive manner like the aforementioned strategy you get respected for it. However, not always are they going to accept your terms. Sometimes they meet you halfway; sometimes they do not accept them at all and demand payment. You have to be prepared for this. That is why you do not allocate all of your free cash flow to these payment plans up front. Reserve some for the creditors who may be adverse. These situations have to be handled on a case by case basis. 

If you find yourself in the midst of a cash flow problem, being proactive puts you in control of a very difficult situation. A Cash Flow Problem is never an easy situation, but I have seen too many situations where the business owner was not proactive and things went spiraling out of control. A Part Time CFO with experience in these situations could be a beneficial resource to guide you through this stressful process