Peter and Paul
We’ve been talking about cash flow all month long, and either you don’t think that’s an issue for you, or you find it a continuing struggle. I get that. There have been times in our lives when I considered us too poor to have a budget, which of course makes no sense at all…but it’s an easy trap to fall into. And there have been times in our lives when I thought we were on top of things, only to be hit with a crisis, suddenly realizing we weren’t prepared at all! When this happens, I far too often resort to juggling my old friends, Peter and Paul…but that’s no way to run a business. How do you know if this is an area in which you need some laser-sharp focus?
Let me submit that none of us are as good at cash flow management as we need to be. We know that half of all businesses fail in the first five years, and 82% of the time, it’s because of cash flow issues. So if you are a new business, this is a timely topic for you. We also know that in the apocalyptic year of 2022, with rising prices and unstable markets, we all need to watch every dollar. That makes cash flow management a timely topic for all of us.
What are the warning signs you have an issue that requires your attention?
The number one symptom is too much month at the end of your money.
You feel like sales are languishing…and perhaps they are!
You find yourself feeling deflated when goals remain unmet.
These signs may be part of a natural cycle or the result of growth within your business, but when you watch the trend, it’s easy to figure out if you have a problem. Let’s just assume we all need to be on top of our game…so how do we do that?
Authorities like Preferred CFO counsel us to not fall back into the trap of frantically selling more to try and reverse a cash flow situation. In the first place, it can be counterproductive, silently communicating panic rather than confidence. Further, it is a short term fix, not a long term solution. What should you do instead?
Begin by putting into place some of the tips in prior blogs:
Track your spending. Don’t just keep receipts. Categorize your spending into things like marketing, office, etc. Know where your money is going and make sure you are satisfied with current trends. You may want to tweak your flow.
Discover benchmarks. Do a little research. What is normal for a business like yours? Do you fall within those parameters? Look at your business lifecycle. Is what you are experiencing normal? Do you need a short term or long-term solution?
Spend less. I know that sounds trite, and I think I mentioned the old Depression-era slogan before, but it bears repetition: Use it up. Wear it out. Make it do. Or do without. Hard choices, each and every one of them, but necessary when cash flow doesn’t meet expectations.
Plan ahead. In fancy terms, CPAs call it forecasting. When you feel a little flush, don’t spend it. Put it aside for the next crunch, which will surely come. Business fluctuates.
As we close out this month, let me counsel you to avoid those old friends, Peter and Paul. You know, robbing Peter to pay Paul? Business News Daily suggests that 61% of businesses worldwide struggle with cash flow. You are not alone, but you should be among the minority implementing better practices. They offer thirteen tips you may find helpful.