Jan 26, 2010
I’ve heard the great recession is over. Try telling that to a small business owner struggling to meet his payroll or pay his suppliers. The great recession of 2009 has caused a lot of pain for many businesses and caught many of them unprepared to cope with a cash crisis and the lack of available bank financing. Many business failures may have been prevented if cash flow planning was part of their daily management practice. Now, let me be clear, business owners cannot control an economic crisis and the effect of such, but that is not to say that business owners should not take proactive steps to implement a cash program to minimize the risk of running out of money.
If you’re a business owner that has been caught in a serious cash crisis or if you are just struggling along and want to survive this crisis then you will want to properly manage your cash flow to increase your odds of success. Read on for some advice.
Rule one, get this thought in your head and never forget it. If you run out of cash your business will fail. Also, profits are wonderful, but profits do not equal cash. Have you ever heard a business owner say, where’s all my cash? I made so much money, (profits) but I am broke! Rule two, you cannot borrow your way out of a cash flow problem without careful planning. Unless you are a financial expert you will need someone with experience to guide you through this kind of situation. There’s a proper method of financing your assets but if you try to band aid a bad cash flow situation with a bank loan you may be setting yourself up for diaster. Next, are you collecting your accounts receivable in a manner to maximize cash flow? I cannot tell you how many businesses I have seen fail because the business owners try to manage this part of their business by themselves. Is inventory part of your business? Is any inventory overstocked or obsolete?
Here are some suggestions for struggling business owners:
1. Rule one –Without cash my business will fail! Cash is King!
2. Rule two - profits do not equal cash. A cash flow projection should be prepared and updated regularly by someone qualified. Items of a capital nature must be identified as well as other than normal operating items such as debt loan payments, etc.
3. Rule three - please use an expert credit/collections service to manage your accounts receivables if you cannot do it effectively in house.
4. Rule four -sell any and all items of inventory that are overstocked/obsolete as soon as possible. This is CASH sitting on the shelf that is also costing you money. Don’t worry about lost profits. Remember, cash is the lifeblood of the business, not holding excess stock in inventory. Survival is the objective!
5. One more rule, be sure your books are clean and correct. This includes your true cash bank account balance. You cannot manage cash if all the numbers are wrong. Get help if you need it from a professional.
6. Cut costs to the bone wherever possible to lower your cash outflow.
7. If you have a bank loan, call your bank right away and explain your situation. I strongly advise you inform them of your situation so they are not blind sighted.
8. Put together a business plan that addresses the business problems and present it to your loan officer. He’s your ally and will work on your behalf to help you. But be honest!
9. Call your suppliers and ask if you can meet with them. Go over your plan and how you will meet your obligations to them. They will appreciate you taking the first step and award you with creditability.
10. At all times stay professional and respectful with everyone you deal with. Losing your cool shows a lack of control and will put you at a disadvantage when negotiating.
Business failures just don’t happen. There are always some warning signs that precede the crisis. Cash flow planning and business projections are essential to every business regardless of its size to act as predictors of future outcomes. If you are experiencing a cash crisis get help. There are always solutions. Going it alone can be daunting.