“Ignorance of cash-flow dynamics kills more companies than fraud, fire, competition, technological obsolescence, or anything else.
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There are few circumstances that can’t be handled and recovered from if key executives and managers have internalised a cash-flow mindset and integrated it into their management style.” — Bill McGuiness, author of the book Cash Rules: Learn and Manage the 7 Cash-Flow Drivers for Your Company’s Success
It is a relentless onslaught. And the pain is much worse as the end of the month approaches. The money available is not enough but expenses have to be paid: salaries, rentals, utility bills — all of which cannot be avoided in the running of a business.
Of the 4 600 firms that closed in Zimbabwe over the past three years, the majority went down after running out of cash to maintain operations. This year the situation seems to be worsening, as sales decline and customers delay payment of their bills for months while a business’s own suppliers and service providers want their money on time.
Small businesses are hugely dependent on their cash flow, so they must either cut costs or scramble to find alternative funding if they aren’t being paid on time. With money tight and bank loans hard to get, a cash-strapped company can easily be pushed to the brink. Making matters worse, big companies typically delay payments to their smaller suppliers first — in part because small businesses are unlikely to have teams of people devoted to chasing down their accounts receivables.
Even healthy and profitable firms can shut down if they meet a serious cash flow crisis. Sometimes, business owners worsen their cash flow challenges by sticking to a certain habit.
Your business will suffer when you get caught up in the negative cycle that begins at the point when you start worrying about your cash flow. Your focus begins to shift away from doing what you do best, which is taking care of customers and making more money.
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Questions start to fill your mind such as: “Which suppliers are we going to delay payment to? Are we going to be able to pay salaries this week? What are we going to tell the bank? How long is this problem going to last? Is my business going to survive?”
At this point, your focus has shifted away from growing your business, and your energy and enthusiasm begin to wane. At best, this is a recipe for poor performance and mediocrity. At worst, it is a recipe for failure. Yet no one goes into business with the intent to create a mediocre business or to fail.
Ignoring the facts The worst habit of many small business owners is ignoring the facts. A researcher carried out a survey and discovered that over 25% of owners of small and mid-sized businesses could not answer the question, “What is your business’s cash balance right now?”
How about you, do you know what the cash balance is in your business right now?
Considering the importance of cash in every business, 25% is too large a number. When you don’t know your cash balance, it basically means you are neglecting the books. You are not “doing today’s work today.”
The most important step you can take to eliminate your cash flow worries is to ask yourself two simple questions:
1. What is my cash balance right now?
2. What do I expect my cash balance to be six months from now? If you can answer each of these questions with a specific number, then you have your cash flow (the lifeblood of your business) under control.
If you cannot come up with numbers, then you don’t have your cash flow under control.
When your mind knows that something as important as cash flow is not under control, it breeds fear. And fear creates worry. When you are worried you lose focus and cannot perform well in your business. In his excellent book, How to Stop Worrying and Start Living, Dale Carnegie provides excellent advice about how to eliminate fear and worry:
Get the facts
Without the facts, all we can do is stew around in confusion.
Analyse the facts Arrive at a decision—then act on that decision. So, you need to get the facts about your cash situation: How much actual cash do you have? How much do you owe to others and when is it due? How much are you expecting from your debtors and your normal revenue? Do a six months cash flow projection. Check if you are happy with the picture it brings out. If it is not a happy picture start acting immediately to rectify the situation.
Are there expenses that can be reduced? How can you increase your revenue so as to boost cash inflows? Do whatever it takes to ensure you don’t sink in a cash flow crunch. Fore-warned is fore-armed; doing something about a future cash flow crisis now will save your business.
Until next week, keep on accelerating your growth.
Phillip Chichoni is a business development consultant who works with SMEs and entrepreneurs. You may contact him by email, [email protected]. You can also visit http://smebusinesslink.com
