Six Actions You Can Take NOW to Help Your Cash Flow - Part I - Jun 1, 2009

Posted by: Linda J. Donegan in

In the last few months, I have had several conversations with clients regarding what they can do NOW (as in "immediately") to help their business. There is a sense of panic in their voice. Let's face it, some long-term solutions and strategies for helping a business through rough times will not work now. Who has the time to wait for financing to be finalized (that is assuming you can find it)? That exercise alone could take months in today's environment. Who has the time to identify and target a new market? Who has the time to develop a new marketing campaign and measure its results? Businesses need a strategy they can implement in the next few weeks, not the next few months. Below are three of the six scenarios I have actually handled with current clients and the solutions that helped them better manage their business in these uncertain economic times.

1. Know your numbers. Every business owner better know the numbers. They need to know what their profitability is, where it is coming from, what their current debt levels are, what their expenses are, and how they change with revenue levels. They must know their cash flow every month.

A new client has 22 stores. They have been in business for 29 years and have never had monthly financial statements. When asked how they know what the profit or loss is, they told me they see it on the tax return once a year. Not only did they not see their numbers monthly, they had no idea which store was contributing and which store was not contributing to the bottom line. Once P&L Statements were available by store, the owners made some immediate strategic decisions regarding several of the stores. These decisions are saving them money each month.

Don't underestimate the value of having accurate and timely financial statements. Learn how to read them. If you don't "get" the financials, find someone to interpret them for you.

2. Project your cash flow. Cash keeps you in business. Face it, no cash, no business. It is truly that simple. Cash is the grease that keeps the wheels turning. Project what you will need for the next six weeks. Start with projected sales, subtract the cost of those sales, and any overhead expense you have. Then make sure you add debt payments and any withdrawals the owner will make.

I was sitting in a client's office the other day and a new order came in. They were very excited about getting this order from this customer, a customer they had been pursuing for months. Then the reality hit. "How are we going to pay for this product? We have to order it before we can bill the customer!" Thus started the "cash dance." They went to their credit cards, moved some money around, crossed their fingers, and called the vendor.

Projecting cash flow will allow you to plan ahead of potential cash shortages. If you see a truck coming, you can get out of the way!!

3.Look at your expenses. Every business owner should look at his/her expenses monthly. Take a hard look at where your money is going. I know sometimes you don't want to give up the nice car, lunches out, dinner and drinks with "customers," the assistant who answers your phone for you, etc., etc., etc. However every one of these things adds up to cash OUTFLOW. Give them up until things turn around. Use common sense. After all, it is the owner's money, and that's you!! Also take a hard look at every expense you have. Is your phone bill correct? Are employees using the phone for personal calls? Are you spending too much in office supplies? Closely monitor what is being bought. What about overtime? Can you do without it?

A client needed to cut costs NOW! The ship was sinking and without cost cuts it wouldn't survive. When we looked internally we found that several of their over 200 employees were getting paid piece work rates that were far outside the industry parameters. A quick calculation figured that bringing those employees into line would save close to $4,000 per month. If the employee quit because of this pay reduction, a replacement could be up and ready to start in a matter of days. Each employee was brought into the office, explained what the issue was, and none had a problem with it. They knew they  were getting overpaid and that they could not go anywhere else and make the inflated rate. Not one employee left.

Expenses have a habit of sneaking into the business. During good times they are not detected because no one is looking. I bet if you really reviewed each of your monthly expenses, you could find some to cut and save some cash flow.

These are three actions you can take immediately to help your cash flow. On my next blog we will examine the final three actions. Get started!

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