Here are 4 ways to improve cash flow to solve small business cash flow problems. Not surprisingly, poor cash flow management is the single biggest cause of failure amongst small business, not poor sales.
1 – Be A leader, Not A Worker Bee
Owners of small business have to realize that managing a business requires a skill set that goes beyond their expertise in whatever they are doing: plumbing, printing, designing, manufacturing, doctoring, consulting and the like. Identifying too much with the worker bees can cause a business owner to think like a worker rather than a leader. A leader isn’t there to be liked, they are there to lead and be respected no matter how unpopular their decisions may be with the workers.
A critical element of that skill set is cash flow management. Adopting a cash flow management plan and seeing to it that it is followed requires giving clear instructions, forceful insistence that instructions are followed, and follow up to ensure orders are carried out properly. Keeping job costs under control and keeping spending down on things that don’t improve production and cash flow is the fiduciary responsibility of the business owner. Upper level management needs to march in lockstep with the owner, and ensure their teams do too. Make sure all employees understand improving cash flow is a priority that they support your working capital objectives.
This is remarkably easy when you have a full grasp on the principles of managing cash flow and are using the best cash flow management software for your business. A cash flow management coach can help a business owner who needs someone watching his back from outside the company.
2 – Get Serious About Collecting Cash Owed To Your Business
Business owners can be too soft when it comes to collecting cash from customers who owe them. Having payment policies that are too tepid, or are open to interpretation by management, workers, or the customers themselves can lead to financial ruin. You want your customers to “like” your products, services and delivery, but you also want them to “respect” your financial policies when it comes to paying you.
Evaluate your collection policies and activities. Set up a policy to detect and handle payment disputes. Stay on top of your receivable. In today’s economic climate it is important to watch 31 and 61 day columns and take action. If you have a receivable that goes over 90 days you chances of collection are drastically reduced, so act early. If you need a recommendation for a collections company that doesn’t charge an arm and a leg and has great collection results while not upsetting your customers, call or email us for our resource.
3 – Plug Cash Flow Leaks
A vital skill is knowing how to use financial policies to both increase cash flow as well as slowing down cash outgo and making sure you get a good return on whatever spending you do. Enforce payment discipline in your business, and don’t let your accounts payable department get sloppy. Pay on time, but not too early. Get all the discounts you can. Run tight control on spending so you never get hit with late fees or overdraft charges.
This means cutting costs on discretionary items that do not increase production and cash flow. Note that I do not consider spending on marketing as a discretionary expense. It also means not spending too much on inventory that only sells sporadically or may not sell if it is a trend that is fading out.
It also means cutting unproductive labor and curbing or eliminating buying on credit. When you buy on credit you are just creating another bill that has to be paid. You cannot borrow your way to solvency.
4 – Get Expert Help
If your business is struggling financially and you are not sure you know exactly what to do to turn the financial ship around, then get the help of a cash flow management expert. There are lots of benefits to having someone outside your company protecting your financial back. Be careful about who you hire to take on this responsibility. Make sure they think and operate as a fiduciary and have earned the chops to call themselves an expert.
A good cash flow management coach who is an expert can save you millions, pull your company out of a bad financial situation and send it into a growth pattern that is sustainable. Hire the best cash flow management coach you can find.
Learning what to do when you run into cash flow problems can serve you well. Not using good cash flow practices can quickly send a business sliding down the slippery slope of insolvency. Ignore good cash flow management actions at your peril.