Cash Flow Myths Demystified

These are a few of the reasons we hear from clients, to explain why they are experiencing cash flow problems.  In fact, any of these can easily be the catalyst for the fire, but every one of these also has a quick solution that can put a company back on track. 

A recent client had a dramatic drop in sales and claimed the drop to be the root cause of their poor cash flow.  Upon analyzing their financials, it was discovered that direct labor was double what it should have been due to the sales loss.  He explained that he didn’t want to lose any good employees, or he wouldn’t be able to produce the work when it started coming in again.  Well sure, when I phrase it like that, the problem is obvious.  But when you’re trying to drain the swamp and you’re up to your waist in alligators, it’s hard to remember why you were there in the first place.  But how much do we cut payroll and how do we go about it? Is product/service priced properly in today’s market? Will the act of cutting payroll create service problems?  We all act differently and make strange decisions when we are in survival mode and up against a wall.  AHHH the life of an entrepreneur!! 

Seeing the numbers, understanding what they are telling you and knowing what to do to change them, all while maintaining a clear head, are ALL necessary elements.  I find myself having to debate with clients who are blind to what they need to do because they are too close to the issues.  Also they have no experience in turning around a business, which requires a completely different set of skills than opening and running a business.  They also generally have no experience in finance.  Finance is not just something needed to pay and reduce taxes. The finance teams often consist of a bookkeeper who taught themselves about QuickBooks, and an accountant whose primary job is to put the numbers into a tax return, which is developed by the IRS and for the benefit of the IRS, not designed to run a business. 

Identifying the problem(s) is just the tip of the iceberg, knowing what to do to correct the problem and repair the damage it left behind is an entirely different set of skills known only to a small group of specialists that represent less than ½ of 1 percent of financial specialists.  That’s pretty small. Like finding a needle in a haystack.    

Then there’s the trust issue.  Hand my baby over to a stranger?  In this world where there are so many scams?  You must be crazy.  We have been in the turnaround business exclusively for over 40 years and have thousands of successes to demonstrate our abilities.  Beware of the “Experts” who are one trick ponies and have a resume consisting of little history, narrow experience, and can’t provide references of successful turnarounds.  We can’t tell if there is a solution until we invest an hour or two understanding your situation.  This is done at no cost, just to determine IF we can help. 

Next make sure they can provide relief quickly when you have tight cash flow.  It can take time for an entire turnaround, but there are always a number of things that can be done early on that will enhance cash flow.  You should see both short term and long term benefits.  This extends to maintaining profit and cash flow once it is attained.  There are numerous outside forces that attack even a healthy company on a daily basis.  Competition, technology, new product development, changing landscape including political issues that drive the economy.  Staying the course is like the small adjustments we make while driving our car.  There is no such thing as a self-driving business, at least not yet. 

According to Christine Christian the former CEO of Dunn & Bradstreet, over 80% of small businesses fail due to not understanding what their numbers are telling them.  Taking that to the next step, even if they did understand the numbers, they don’t know what actions would produce a solution that would stick, or how to adjust the plan on the fly as new issues creep up. 

Knowing your numbers is THE most important first step. 

Now you know!