Improving Cash Flow Problems

 At one time or another, all business owners agonize over their cash flow situation.  Some more than others.  How do we control it?  Sometimes cash flow has a way of being seemingly uncontrollable, no matter how hard we try to can a handle on it.  Identifying where the problem lies is the first step.  Fixing the problem is the next.  This seems simple but every business owner could attest to the fact that cash flow problems are among the most stressful dilemmas that they face in operating their company.  Let’s scratch below the surface and take a closer look.

Sometimes business owners are too close to their situation to be able to see clearly where the problems lie.  Having someone on the outside take a closer look can be helpful at times, for example, an accountant, business consultant or friend who might be able to objectively look at what’s going on within a company to identify operational deficiencies.   This can be difficult because the inner workings of a company are intricate and involve many aspects so if you have someone on the outside take a look, make sure it’s either someone you trust or someone who has signed a nondisclosure agreement.

If you plan on uncovering the problem yourself, there are some things to consider.  There are several ways to improve upon a company’s solvency. Not only must one ponder ways in which to increase revenue but also consider ways the company can decrease operating expenses.  Look for holes where your company could possibly be hemorrhaging cash.  Sometimes an expansion can initially drag a company’s finances down before it starts bringing them up.

Let’s take the entry point where money first comes in.  Depending on the nature of your business, money may come in the form of cash, checks, credit card payments, electronic transfers, etc.  Who is in charge of this function?  If it’s not you, the person or people involved in the entry point of income need to be audited on a regular basis.  Employee theft should never be beyond the realm of possibility.  For example, if the name of your business is, “My Company, Inc.” – what if one of your accounts receivable representatives forms a company called, “My Company, LLC” and intercepts all checks written as, “My Company” without a corporate distinction following the name?  It’s possible that they could be rerouting your company’s funds to their own bank account.

If your business takes in cash, you should most definitely have checkpoints in place to prevent employees from pocketing the cash without registering the sale.  You can do this by counting inventory, installing video cameras or planting an undercover security officer who secretly acts as a regular employee.  It’s a lot of extra work but unfortunately necessary to ensure your employees aren’t stealing from you.  Even if they aren’t deliberately stealing from you, don’t underestimate the magnitude of human error.  You could have an employee who is inadvertently losing thousands of dollars just by making honest mistakes.  Incompetency is just as damaging to your cash flow as theft.

Systemic problems are also a drain on capital but a little harder to identify.  For example, there could be an element in your operational protocol that is making you lose money, despite how trustworthy or competent your employees may be.  It may require extensive internal control audits to identify whether your company’s systems are contributing to the loss of revenue.  Waste can be a big problem at companies that aren’t keeping a close enough watch on the flow of money.  Establishing a good check and balance between departments can help to minimize this risk.

One of the biggest offenders of cash flow problems simply lies with the fact that your company just might not be generating enough sales.  Your operating expenses won’t stop just because your company is making less money.  Industries change and companies must change along with the times if they want to keep up with the trends and stay in business.  Even if your company was once successful doing business a certain way in the past, keep your ears to the ground at all times in an effort to stay current with industry trends.  You may need to change the way you operate from time-to-time by selling new or different products or offering new or different services.  Resisting these industry shifts could be detrimental.  Always be open to change.  It could save your company.

Another thing to always keep at the forefront of your mind is sales and marketing.  Very few companies can enjoy the luxury of sitting back and watching business just come to them.  Even companies that do could be making so much more money if they make a conscious effort to seek out new business opportunities.  Don’t ever neglect your marketing plan as it is the lifeline to sustaining and perpetuating your business.  As times change, new ways of selling your products and/or services may change.  Companies that got most of their clients from the phone book in the past were certainly forced to seek out other channels.  Being more creative with your sales efforts will always keep you one step ahead of your competition.

To break this down in the simplest form, your company will experience cash flow problems if it is spending more money than is being generated.  This happens when you are either spending too much money or not generating enough money fast enough.  Possibly even both.  Once you find out which one of these scenarios is your problem, then you can begin to fix it.  Questions to ask yourself when trying to solve this problem are as follows:

1.    Are your clients paying on-time?

2.    Are you paying too much interest on loans?

3.    Are your profit margins high enough?

4.    Are you billing your clients appropriately?

5.    Are you growing your business too fast?

6.    Are you selling enough product/services?

7.    Can any of your expenses be eliminated or lessened?

8.    Is your rent/mortgage too high?

9.    Is your inventory moving fast enough?

Remember that most of the time, cash flow problems happen when companies don’t sell fast enough or get paid fast enough.  If you want to sell more or faster, boost your sales and marketing efforts or offer additional products/services.  If you want to get paid faster, charge late fees or hire a collection agency.  Check credit references before extending credit to your clients.  Analyze your expenses to see what can be either cut or reduced.  Improve upon your collections process.  Make sure your charging enough for your products/services.  Figure out ways to lower your expenses and increase your sales.  Don’t purchase more stock than you can sell within a reasonable amount of time.  Limit the credit terms with your customers.  Identify and eliminate waste.  Grow your business slowly and carefully.  Pay close attention to seasonable demands or lack thereof.

For more information on how to remedy cash flow problems, call Ashlar Consulting Corporation at 305-849-9399 or visit www.AshlarConsultingCorp.com.