When speaking with business owners about their Cash-Flow position I get blank looks or ‘It’s not too bad’. comments. Wow, that tells the same story all over and over again.
Cash-Flow is not something that is on business owners minds every day – but it should be.
I understand business owners are busy people juggling a lot of tasks. And looking at the bank balance and/or the Cash-Flow Statement can be depressive. Yet, keeping any eye on cash flow is somewhat essential I would have thought. All businesses have to generate positive Cash-Flow sooner or later.
Apparently more than 80% of small and medium sized business struggle with their Cash-Flow. The lack of positive Cash-Flow is the main reasons that business fail in the first 5 years.
Surprising this is not. It’s not an Einstein equation: A. Money coming in, minus B. Money going out equals C = money left over (or not).
So, what are the obstacles? I spotted the following, typical episodes:
- Owners pumping cash into the business. Usually upfront from savings or personal loans. To pay for expenses, capital or marketing.
- Business gets traction – slowly though. However costs keep coming. Thick, Fast and Relentless.
- Revenue is generated but barely covers costs.
- No full night’s sleep arrives, tossing and turning continues.
- Keeping fingers crossed, Cash-Flow will turn positive – One Day!
Are there any easy solutions? No. This Silver Bullet has not been invented. Setting up and running a business always harbors risks. What can be done before jumping in the cold pool of Cash-Flow?
I found these 2 Steps help to minimize on-going Cash-Flow problems.
1. Test all activities undertaken if they contribute to (positive) Cash-Flow, for example:
– Online marketing. Check your metrics: Am I reaching the target audience before I spend big on marketing? Do I need webinars with bells and whistles?
– Engaging support services. Do I need to hire an expensive accounting firm right away or can it wait? Do I need a fancy website right from the start or the marketing guru that promises a turn-around in only 30 days?
Take no prisoners when checking this!
2. Align all internal processes towards the Cash-Flow target – this could mean sacrificing a pet project or working in uncharted territory (eg “I don’t like all that accounting stuff – I like selling cup cakes!”). Eliminate those activities or processes that add very little or nothing. Focus on the core business processes with a straight line to Cash-Flow.
About the Author
Markus specializes in Cash-Flow improvements for SMEs with particular focus on Manufacturing.