America’s Cash Flow Crisis

Cash flow

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The statistics revealed in the latest The State of Small Business Cash Flow, a global study conducted by Intuit (the makers of QuickBooks)  are STAGGERING!

Results indicate that 61% of small businesses around the world struggle with cash flow.  It’s not surprising then that poor cash flow is the reason 50 percent of small businesses close their doors within five years of opening them. 

Achieving a balance of income vs. expense (aka cash flow) can be a challenge for small business owners. Seasonal businesses are especially susceptible to cash flow issues.

Almost as alarming as the statistics is the fact that many small business owners never even consider cash flow.  Be honest, when was the last time you looked at a cash flow statement for your business?  I admit, I owned my campground for four years before being introduced to this financial report.  (A fine example of why you should find a stellar financial partner early on) Truth be told, many of my clients know nothing about financial reporting.  If there is money in the bank and a positive number at the bottom of the Profit & Loss Statement at the end of the year, they are good.  You may want to sit down before hearing this.  Ready?   It is possible, dare I say common, for a business to fail even with money in the bank and a net profit at year end.  The good news is that you don’t have to become a statistic. 

“Show Me the Money!”

First, take some time to find a good financial partner.  A bookkeeper, accountant, or a local representative at the SBDC (Small Business Development Center) are all good option.   If you’re not sure how to determine if someone is good, bad, or otherwise, shoot me an email and I will happily provide a list of things to look for and ask.  For the sake of transparency, you should know that I offer these services.  However, I promise, if all you ask for is a list of criteria to aid your search, that is all you will receive.  You could also take a peek at the LinkedIn article I wrote last fall called A Better Bookkeeper.”

For the purpose of controlling your cash flow, you aren’t looking for someone to do data entry.  You are looking for someone who understands financial reports and how to make the data they produce work to your advantage.  Why?  Because in the words of Jerry Maguire, the purpose of all financial statements is to “Show Me the Money!”

I recommend you review your income statement (i.e. profit & loss), balance sheet, and statement of cash flow on a monthly basis.  I can see it…your eyes just glazed over.  But stay with me here.  Your trusted advisor will work with you to set these up and educate you on what information each provides.  The reports can be saved so you just have to click run and print.  You can handle that right?

I bet you are wondering, “what will these reports tell me about my business that I don’t already know?”  These reports can tell you everything you need to know about the path that your business is on and provide opportunity to head problems off before they happen.   Wouldn’t it be helpful to know…

  • What is your most profitable income source?  Your least profitable source?
  • Is there a high enough profit margin figured into your prices? 
  • Is there a period during the year when cash flow a problem?
  • Conversely are there months of the year when cash flows freely? 
  • Do you consistently have long term negative cash flow?
  • Can you afford to make capital improvements?
  • Can you afford to pay yourself?

These are just a few answers your financial reports can give you.  Answers that are important in managing your cash flow and your success.

What’s Next?

Whether you have a cash flow problem or not, there is always room for improvement. Armed with the proper knowledge, you and your financial adviser can develop a cash flow management strategy that may include:

  • Re-evaluate your operating expenses.  Are all of your expenses necessary?  If they are, is there a cheaper (yet functional) alternative?
  • Is there room to increase prices?  What are your competitor’s charging?  Have inventory or costs of sales increased?
  • Expand your sales market.  Are you missing income opportunities?  Are you giving away services that you should be charging for?  Think outside of the box to determine if you can offer a unique new service. 
  • Encourage your current customers to buy more.  When I had my campground, we rigged our golf cart with an outlet for a small portable freezer and began selling ice cream after our store closed.  HUGE INCOME PRODUCER that required a very small investment.
  • Re-evaluate your marketing strategy.  What worked a couple of years ago may not be working today.
  • Liquidate old inventory.  Anything sitting on your shelf is money not in your pocket (or flow of cash).  Carefully consider which products sell well and which you have a hard time turning over.  Also, watch your sales patterns and order inventory accordingly.

Keep on Truckin’

This is not a one and done process, but it doesn’t have to be a major time suck.  If you are using a desktop version of QuickBooks, there is a fantastic cash flow forecast tool that you should absolutely take advantage of.  Otherwise, a budget vs actual report can keep you on track.  Again, these are tools your advisor can help you set up, so it is not a huge monthly production.  If you spend 30 minutes a month (6 hours/year) reviewing these reports you will have a better view of your business and piece of mind.  That sounds like time well spent to me.


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