By keeping track of accounts receivable and accounts payable, it is relatively easy to project cash flow needs. Payrolls are met without problems. When a business has a problem meeting its payroll, drastic action is generally needed to save it from financial ruin. When this happens, it is a sure sign that general business practices are poor. On the other hand, an ability to meet the payroll is usually a sign that the business is at least in a fair state.
Money is set aside for expansion, emergencies and opportune purchases.
Few small businesses have the advantage of being cash rich. Many fail simply because they do not have money set aside for emergencies, they operate too close to the margin. Having an emergency fund should be considered a necessity rather than a luxury. Having an expansion fund, or a special fund set aside to take advantage of opportunities, not only reduces stress for the owner, but can often provide an operational advantage for the business. Short-term financing is used when needed.