The Most Pointless Statement Ever – Cash
If you ask anyone in business why businesses fail then the answer is nearly always that they ran out of cash. This is the most pointless statement ever.
Imagine a doctor breaking the news that someone had died, then giving the reason as ‘they had stopped breathing’, it is meaningless. Quoting business failure as ‘ran out of cash’ is exactly the same.
Running out of cash is the reason that the business failed, but the real reason is what caused the business to run out of cash.
Cash Is King
Heard of that one? Doubtless you have, it is written in every management book. However, let me put it differently;
If you only ever manage your cash you will eventually run out. Fact.
So let me change it round a little. Try this;
- Manage your cash by looking at the events that impact on your cash flow
- Manage your business by analysing these events
- Grow your business by addressing and taking action to improve these events
You will do all this in every other area of your life without thinking. If you have a bad back you will look at why it is bad, maybe change your mattress, get some physiotherapy, try and prevent a recurrence. Your business really is no different.
The Key Events That Impact on Cash-Flow
The biggest challenge can be in identifying what the issues are that are putting pressure on your cash flow. Once you have identified them then it becomes easy to make a plan to address them.
Let me try and help you out on this. Some of the common issues follow, get ready…
Lack of Management Information (MI)
What are you using to inform your decisions? Use good MI, use MI that is current and relevant to you. This could be;
- Looking at where your sales have come from
- Seeing who has and hasn’t paid you
- Watching your Gross Profit Margin and Net Profit Margin
With the amount of free or cheap on-line systems available there will be a solution which allows you to know everything you need. If you don’t know about these items then get a system in place now.
No Plan B
Things will go wrong. You will lose that profitable client. A supplier will let you down.
Make sure you have a plan B. An easy way to start looking at this is to run a Porter model on your business, it will identify the key risks that need a plan B.
In a previous career I had a client that provided weather information for various on-line apps. They were notorious for never having any forecasts, always thought that ironic.
Always look ahead. Look at what is coming up, when you may be tight on cash, then seeing what you may be able to do in advance. Often small things like bringing work forward, invoicing in tranches rather than at the end of a job, asking for better terms from suppliers (before you need them) can all really help.
If you want more information or have any questions about this post then please get in touch on 01293 541333 or add your comments above. It is always great to get feedback.
By Dave Farmer
Dave Farmer is the founder of Lime Consultancy, a business finance and lending specialist based in Sussex.