A poor economy often serves as a wake-up call to the critical importance of cash flow management for cash-strapped small businesses. As a business owner, you should not expect a quick fix when you never seem to have enough cash on hand, but instead, look for deeper, systemic remedies.
Cash flow problems are symptoms of underlying business issues. If you don’t have a marketing plan, sales will suffer. If you don’t have good credit-granting practices, you’ll end up with slow paying customers. If you don’t use vendor credit wisely, you’ll run out of needed goods for production. Solving the specific business problems will cause the cash flow problems to evaporate.
A systemic approach might include the following specific steps for a business with cash flow problems:
- All customers are not created equal. Some are more valuable from a cash flow perspective. Meeting the needs of those most valuable customers through focused services or products has a positive effect on cash flow.
- Vigorously reduce unnecessary or bloated expenses like bottled water, coffee supplies, subscriptions you don’t read, products you don’t need or don’t need right now.
- Develop a highly focused marketing message aimed at attracting and retaining your best customers (this also works to repel the customers you don’t want.)
- Tighten up collections practices. A sale isn’t a sale until the money is in the bank.
- Get a firm grip on financial reality by developing disciplines like budgets and forecasts.
By taking a systemic approach, you can build a stronger business that is better able to withstand the rigors of harsh economic realities.
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