MOST SMALL BUSINESSES suffer cash flow problems.
I have been working with small businesses for many years and surprised to see such a high proportion that have got used to operating in a permanent state of poor cash flow, living hand to mouth each month.
If in your business there never seems to be enough cash to go around and you have to prioritise which suppliers to pay each month, this abnormal situation will be due to a number of reasons.
Unless the business is on the brink of becoming insolvent in the next ten days, then most cash flow problems can be fixed, so that eventually, creditors are paid on time and the business can begin building a healthy cash surplus.
No cash to spare?
I have experience of helping to turn difficult businesses around, where there is apparently no cash to spare, so what to some business owners / directors can seem a desperate cash flow situation, may well look quite different me.
I have helped several businesses to turn around a desperately poor cash flow and survive, even when the directors were resigned to what they thought would be the inevitable winding-up of the business. If your business is suffering cash flow problems, then don’t lose heart – there is likely to be a way through this difficult time. Your job is to avoid a visit to the insolvency practitioner.
Underlying reasons for poor cash flow
The most obvious cause of a poor cash flow is not generating sufficient profits to cover costs, or spending more than the company generates in cash.
However, this is rarely the whole story as there are normally other reasons that will be less obvious. Underlying problems of this type are rarely about cash and more about how the business is organised and run. You will see how this issue is addressed later.
Here are the two steps to fixing cash flow problems, so the business can enjoy a positive cash flow. Because every situation is unique, these steps are more general than specific. Without knowing your situation, they can only be a guide, I hope you find them useful.
Most businesses run on a monthly cycle, with making payroll being at the centre of many cash flow crises.
You need to survive to the end of this month, so only focus on surviving this month. Do whatever you need to do to get through this month.
After that, next month will have become this month – and again, you’ll focus on surviving this month, doing whatever you need to do to get through the month; and so on.
One month at a time, until cash flow is under control. Make your decisions a month at a time.
This is all about determining the changes that need to be made to the business. Don’t worry for now about how you can afford to make the changes, just establish what needs doing. If you don’t have a business coach or consultant, this will be a tough thing to do, as you will need to take yourself out of the business for an objective view of your world.
It’s unlikely that you will want to operate the business in future as you have in the past, so resolve to allocate sufficient time to learning the lessons and reorganising the problem parts of the business, systems and processes.
Focus on fixing the obvious and underlying issues that have contributed to the cash flow problems in the first place. You will likely need a business coach or troubleshooter to help you identify the problems and determine the remedy, as on your own, all you are likely to see is that there is no cash.
Almost certainly on your ‘things to do’ list will be to generate some quick cash, so as a minimum you will very quickly need to produce a short, sharp plan for marketing and selling something that will generate cash and profit.
While you fix the issues, you will need to keep creditors at bay. There are a number of ways that you can keep them on-side and buy some time. I will cover this in a separate, more detailed note. Contact me if in the meantime you need more urgent help with this.
Once you understand the changes that you need to make to the business, make a plan showing your must-do tasks and activities over the next three months. A gantt chart would be ideal. You will need twelve weekly columns into which, you will fit everything that needs to be changed and completed, by a date. Then get started on making those changes as quickly as possible.
If like me, you have asked insolvency practitioners about the main reasons that businesses fail, you will know that towards the top of their list will be – that whatever the actual problem was in the business, the owners / directors didn’t spot it early enough or fix it quickly enough. They let the problem run on for too long and then by the time they did something about it, it was too late. Too far gone. Don’t let this be you.
Help is available
If you are finding all of this a challenge, or you don’t think you have enough know-how or time to make the changes to the business, then ask for help. The sooner the better.
I will be pleased to spend two hours with you to help you determine your next steps and guide you as best I can, either in a face-to-face meeting or across Skype / Hangout / over the telephone. Our conversation will be confidential and there will be no charge – and let’s see if we can’t help you get your cash flow back on track.