It’s getting near the end of the year. Is money tight? Are you worried about how the current economy is going to affect business over the next 12 months?
Or are you just tired of always having to rob Peter to pay Paul?
While each company believes their issues are unique, in the 15 years I was a Business Advisor in the Dept. of Commerce’s Manufacturing Extension Partnership (MEP) program, I found many commonalities in working with businesses. The number one issue was often a lack of a sufficient cash flow.
According to a U.S. Bank study, 82% of business failures are due to poor cash flow management, or poor understanding of how cash flow contributes to business.
Many of the manufacturing leaders I’ve met with over the years are absolutely amazing technical people. Way smarter than I’ll ever be! My husband always says, “These are the guys that can fix an engine with a bobbypin!” (Yes, women too!) Yet many never really learned how to properly read financials and don’t understand cash flow principles.
Covid showed us many examples of small businesses that weren’t able to hold on–not because they weren’t good businesses–or even great people. They simply didn’t have the cash flow. And that doesn’t necessarily mean their sales were down. You can have fantastic sales without making a profit.
So 3 pieces of advice…
1. Work Smart. Take the time to find a CPA, Banker, SCORE member or other seasoned professional that you trust to help you better understand cash flow and financials. Simply start with, “I feel I should be making more profit. I’d really like to have a second set of eyes to help me understand, what are my best options?”
2. Share Smart. Make sure your entire management team understands where you stand and what the plan is. We often assume our team understands what’s going on. That is a mistake. Even if you don’t want to share your financials with everyone (–although I believe there’s significant merit in that approach if you also teach people what they mean and how that affects THEIR job!), be deliberate about communications. They can’t help you or even give sound advice really if they don’t know.
3. Be Smart. Develop a budget which lists all outstanding financing obligations. Then contact your vendors, lenders, banks, credit card holders and landlords and ask to renegotiate terms. Explain, the goal is to positively affect cash flow. And then monitor it on a regular (weekly or monthly) basis.
There are other ideas that can help like reducing inventory, improving process efficiencies, selling off idle equipment, or offering discounts to your customer who can pay YOU faster.
So, ultimately, having a healthier positive cash flow will not only allow your business to have a better chance of weathering the inevitable storms, but ultimately, that means LESS STRESS for you and MORE SECURE JOBS for your community.
#leadershipdevelopment #businesscoaching #reddaycommunications