Your car won’t run without fuel, nor will your business.
You can’t do much when you run on empty all the time
The life blood of any business or organisation is cash flow. Running out of cash is like running out of petrol, it doesn’t matter how good the car is, there’s no progress and you will fail to proceed.
Your ability to generate customers and profit is essential for business success but, your ability to manage cash flow can make or break a business, faster than you can drink a beer. One answer is to always focus on creating revenue before you focus on spending.
Cash flow embodies the language of small business and is perhaps the number one problem most businesses have. If cash flows are budgeted correctly, funds should be available to meet expenses as they fall due for payment. Managers can be brought to the brink, by cash flow problems, with many saying stress about cash flow is adversely affecting their health and relationships. There are too many businesses being run on a wing and a prayer and a lot of hot air.
Often when there is a cash flow crisis people go into a huddle, call in the experts and try to work out what to do. Much time is expended, that if the time had been applied to making some extra sales the problem could have been fixed.
A budget is critical
You need to know how much petrol you have in the tank to get you to where you want to go. Some don’t use a gauge or a budget as they find it hard to estimate the factors impacting cash flow, or they find it difficult to understand the future as it keeps changing. The important thing is to just start doing a budget, with help if necessary, as accuracy improves with practice and experience.
“One of the best lessons I learned early in business was that financial statements count for nought if there is no cash flow”. Peter Sergeant
Survival depends on a positive cash flow
All businesses need a steady and reliable cash flow to survive and grow, whether to pay wages, tax, suppliers, fulfil orders, purchase more stock or new equipment or simply take advantage of new opportunities.
Slow or unreliable cash flow can restrict your growth. According to Dunn and Bradstreet, “90% of small business failures are caused by poor cash flow”. Put simply, not enough cash is coming in the door and too much is going out. Getting paid on time and managing your outgoings is critical to business success. The aim is to make the business work and in order to be successful, the cash flow must be positive and strong. Cash is King.
Heed the cash flow warning signs
There are several key warning signs of looming cash flow problems. Only a failure to heed these signs can push your business over the edge. If you take measures to solve these problems, you could avoid a failure and save yourself considerable resources and stress.
- Declining sales.
- Customer service is slipping.
- Poor pricing policies.
- Mounting debts.
- Delays in deliveries.
- Delinquent customer accounts.
- Wages not being paid on time.
- Inability to obtain funding.
- Depleting floor stock.
- Empty offices.
- Problems selling dead or obsolete stock.
- Overdue tax payments.
- Spending is out of control.
- Unused assets not being disposed of.
- Asking for big deposits.
- Excessive calls from creditors.
- Unexpected creditors arriving on the premises.
- Being placed on COD (Cash On Delivery)
- Poor morale, absenteeism, grumpy people.
How to manage your cash flow more effectively
Good cash flow management involves spending only where it’s needed. There are times where expenses can spiral out of control and these expenses add up and can cause a nasty surprise at the end of a month or year.
There are areas where costs can be cut without significantly compromising employee well-being or the quality of your customer service. A good policy is not to spend a cent unless it will improve customer service or the efficiency of the business.
[read more=”Personal Experience” less=”Personal Experience”]
One of the hidden problems of a poor cash flow is that it soon becomes common knowledge. People are better educated these days and can feel when a business they are dealing with has a cash flow problem.
Customers overhear comments and observe things that are different, promises are not kept, deliveries are inconsistent. Keep the conversations about your business positive.