Journey of a Serial Entrepreneur

Icon

How to get from where you are to where you want to be

Are you Out of Cash?

Happiness is a positive cash flow. Fred Adler.

I do not agree completely with Mr. Adler’s point of view but I do understand where he is coming from. Those of you who have been through tight cash flow cycles, will be able to connect with the quotation much as I did. Running out of cash is a fundamental reason why many businesses have to pack up and fold. Without correct management of this critical asset, we find ourselves unable to meet payroll needs, pay suppliers or even cover basic business expenses. We could have a booming business yet mismatched inflows and outflows can cripple the business’ ability to meet obligations.

First time entrepreneurs, and in general smaller companies are more vulnerable to experiencing such incidents. There are a few major reasons behind this.

1. Firstly, due to inexperience, first time business owners generally do not have a tight control over outflows. This results in over inflated payrolls, very high basic expenditures and often frivolous spending on equipment and services which they clearly do not have a requirement for. With high burn rates and not enough business coming in, the business usually has to drastically cut expenses and lay-off staff to make ends meet.

2. Secondly, marketing plans are usually not executed as planned and controls are not put into place to measure their effectiveness. This results in fewer deals being clinched and ultimately lower revenue figures. With less cash in hand, marketing efforts are usually scaled back and this becomes a vicious cycle where there is not enough business coming in to sustain basic expenses.

3. Thirdly, due to their smaller size, larger clients usually take advantage of them by delaying payments and suppliers do not provide adequate credit support. This results in a two way pull where matching inflows to outflows becomes an extremely challenging juggling act.

These are just some major problems which result in a cash flow crisis. Not only are these situations detrimental for the health of the business, they also lead to higher levels of stress for the business owner. The fact of the matter is that managing cash flow is challenging for any business regardless of its size. It requires discipline, creativity and a lot of perseverance. Over the course of this week I will share some insights on how to make cash management systems more effective. I would like to know what systems readers are currently using to manage their cash flows, and, what has worked and what has not.

Advertisements

Filed under: Finance, Strategy, , , , , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: