Depression Highway - Ignoring Your Cash Flow

Cash flow managment

Looks like these guys suffer from Cash-Flow Depression.

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.