I wish I had more cash! My bank won’t give me the support I need. I wish I had access to more capital like the big guys have. These are just some of the complaints I hear from new clients. Yet, the solution to their problems often lies within reach. The cause of their cash flow problem is often a function of their lack of controls, reporting and being on top of their people to execute whatever controls and reporting they do have.
Would it surprise you if I said that many small businesses don’t have the right person handling their collections and that small business owners often relegate (note I did not use the word ‘delegate’) this duty when more direct involvement by the owner would have more quickly
resolved the issues. Would it surprise you if I said that many owners fail to stay on top of the accounts receivable before delinquencies get out of hand?
You probably have heard that the best time to establish or increase your lending capacity (e.g. line of credit limits) is when you don’t need to. Yet I sometimes have to become a broken record in order to move some clients to take such action. It’s called ‘better safe than sorry’.
Excessive inventories are another cause of cash flow problems and I sometimes find that the person in charge of purchasing or inventory control either isn’t following or doesn’t have a good system in place to keeping inventory levels to a reasonable minimum. Sometimes they are driven by an overzealous sales manager/owner who wants to avoid ‘out of stock’ at any cost to the company.
While there are many other causes (including low profitability), I also see SBOs buying fixed assets (equipment, buildings, leasehold improvements) with cash – rather than obtaining a loan for the appropriate length of time. The reason is usually psychological but is still
generally a bad move especially when getting financing is harder and takes longer than in ‘old times’ (which means less than 5 years ago!).
If you feel trapped by your cash flow situation, then you may want to learn more about it in my new book, Set Yourself Free – How to Have A Thriving Small Business… And Enjoy It! because you don’t want to wait until you hit the wall on this one. The Small Business
Administration says one of the leading causes of failure of small businesses is inadequate capitalization… which is impacted by your borrowing practices as well as managing accounts receivable and inventory.
I hope you will take a moment to read more about it. Feel free to call me at 518.369.7101 or email me