/17 Feb 2025

Avoiding Cash Flow Mistakes

It sneaks up on you.  One month you have a loss, but there is sufficient new business on the horizon that you know things will be fine.  A few months go buy and the sales don’t come in. You step up to take things into your own hands to increase sales.  Welcome to Stage 1 of the demise of your business. 

WHAT?  How could this be the wrong thing to do, you ask?  Because you’re being reactive and not proactive.  I know, it seems like getting more sales is proactive, but nay, nay.  Making your existing sales profitable as they exist today is Proactive and what actually needs to happen.  Let’s visit the Ghost of Christmas Future and continue on the track that you’ve chosen to see what happens tomorrow. 

Read the details below.

Stage 1 has you doing everything you can with the couple of hours a day you can steal away to run after new sales.  You are sure they can happen, but yet nothing seems to be materializing.  You see a few dollars in new sales, but you’re becoming convinced that it is industry wide, or the economy is to blame.  You decide you need to do something different.

Enter Stage 2.  You come back and start cutting any obvious expense you can.  Every entrepreneur has things they have allowed to go on when they were making money.  Well, no more of that.  Out with all the extra crap.  Now you feel like you have cut anything that didn’t help to produce your existing sales, so why are you still losing money?

Stage 3 has you convinced that if you already cut costs where you could, you really MUST have more sales.  Here you go again, out to start knocking on the doors of existing customers.  Let’s see if we can squeeze more out of them.  They seem to smell the fear and desperation like a dog does.  They actually withdraw from your proposals instead of seeing the wisdom of giving you more business. 

Well, searching for more sales isn’t working, so I guess we have no choice but to figure out how to cut more expenses.  Unfortunately, what is left after the first cut is to cut things that don’t play a direct role in producing your product or service.  So, you cut things like Customer Service, Advertising, or worse, bookkeeping.  You’ve gotta get rid of some expenses somewhere.  This is what I call “cutting into the bone”.  The very reason your product sells is because of the quality of service or product, which you just compromised.  The customer senses problems and withdraws.  Sales actually start to decline quicker.  Kind of like cutting the wrong wire on the bomb and the clock goes faster.  

Stage 5 has you realizing, “If I only had more cash”.  Off to the banks and other less desirable lenders.  What you don’t realize is that borrowing only moves the debt from one place to another, but it still needs to be paid out of profit which you don’t have.  To make matters worse, the higher interest IF you found money, makes the hole deeper yet.  Most of the time you can’t even find the money. It becomes a time-consuming process.  You say you won’t pay those absurd interest rates, but what choice do you have?

Stage 6 has you thinking about actually selling and getting this thing off your back.  You start to carefully troll for a buyer.  Thank goodness you get some interest.  You’re elated, finally relief is in sight.  They are saying all the right things, even promising to pay you what you want.  Until one day, they find one of your hidden skeletons.  They tell you that this is the purpose of the “Due Diligence” process and not to worry, we can simply adjust for this in the price we agreed on and move forward.  You’re relieved.  Then it happens again, and again, until it’s starting to look like you’ll have to pay them.  You may think, “this is a load of you-know-what.  I don’t have to put up with this, I have a lot of sales, and I can make more on commission than what they’re offering me.” 

Stage 7 finds you further back with the bank, the IRS, or creditors than you have hope of recovering from.  It’s time to talk to friendly competitors who will most certainly want your book of business and be willing to pay you handsomely for it.  After several calls, it is becoming apparent that everyone in the industry knows of your eminent demise.  But why not buy my sales anyway?  What you can’t hear is their thought that you’ll soon be dead, and they can pick your pockets clean, so why pay for your wallet?   

Stage 1 has you doing everything you can with the couple of hours a day you can steal away to run after new sales.  You are sure they can happen, but yet nothing seems to be materializing.  You see a few dollars in new sales, but you’re becoming convinced that it is industry wide, or the economy is to blame.  You decide you need to do something different.

Enter Stage 2.  You come back and start cutting any obvious expense you can.  Every entrepreneur has things they have allowed to go on when they were making money.  Well, no more of that.  Out with all the extra crap.  Now you feel like you have cut anything that didn’t help to produce your existing sales, so why are you still losing money?

Stage 3 has you convinced that if you already cut costs where you could, you really MUST have more sales.  Here you go again, out to start knocking on the doors of existing customers.  Let’s see if we can squeeze more out of them.  They seem to smell the fear and desperation like a dog does.  They actually withdraw from your proposals instead of seeing the wisdom of giving you more business. 

Well, searching for more sales isn’t working, so I guess we have no choice but to figure out how to cut more expenses.  Unfortunately, what is left after the first cut is to cut things that don’t play a direct role in producing your product or service.  So, you cut things like Customer Service, Advertising, or worse, bookkeeping.  You’ve gotta get rid of some expenses somewhere.  This is what I call “cutting into the bone”.  The very reason your product sells is because of the quality of service or product, which you just compromised.  The customer senses problems and withdraws.  Sales actually start to decline quicker.  Kind of like cutting the wrong wire on the bomb and the clock goes faster.  

Stage 5 has you realizing, “If I only had more cash”.  Off to the banks and other less desirable lenders.  What you don’t realize is that borrowing only moves the debt from one place to another, but it still needs to be paid out of profit which you don’t have.  To make matters worse, the higher interest IF you found money, makes the hole deeper yet.  Most of the time you can’t even find the money. It becomes a time-consuming process.  You say you won’t pay those absurd interest rates, but what choice do you have?

Stage 6 has you thinking about actually selling and getting this thing off your back.  You start to carefully troll for a buyer.  Thank goodness you get some interest.  You’re elated, finally relief is in sight.  They are saying all the right things, even promising to pay you what you want.  Until one day, they find one of your hidden skeletons.  They tell you that this is the purpose of the “Due Diligence” process and not to worry, we can simply adjust for this in the price we agreed on and move forward.  You’re relieved.  Then it happens again, and again, until it’s starting to look like you’ll have to pay them.  You may think, “this is a load of you-know-what.  I don’t have to put up with this, I have a lot of sales, and I can make more on commission than what they’re offering me.” 

Stage 7 finds you further back with the bank, the IRS, or creditors than you have hope of recovering from.  It’s time to talk to friendly competitors who will most certainly want your book of business and be willing to pay you handsomely for it.  After several calls, it is becoming apparent that everyone in the industry knows of your eminent demise.  But why not buy my sales anyway?  What you can’t hear is their thought that you’ll soon be dead, and they can pick your pockets clean, so why pay for your wallet?   

Yep, now it makes sense. Any of that sound familiar? According to the Bureau of Labor Statistics’ Business Employment Dynamics, 70% of ALL businesses are gone within the first 10 years.  It doesn’t stop there though.  While the mortality rate may slow a bit, businesses who make it to 10 years are not exempt from failure.  The remaining 30% continues to erode with time, until very few are left.   

I know, “NOT ME!”, you think. What in your overly optimistic mind makes you think that your business is immortal?  Ego, that’s what.  The very strength that got you into business and kept you going, is what puts you out of business.  Your greatest strength becomes your greatest weakness.  Hmmmm, that sounds like a quote I’ve heard somewhere.  Maybe there’s a reason for its existence.    

So, here’s my close and the point of this article.  Go way back to where we started, before the Ghost of Christmas Future showed up.  Remember when Stage 1 started, and I said that you became reactive instead of proactive?  Yea, well, that’s where you made the wrong turn.  KEY: Take the sales you have and make them profitable, NOW, today!  It’s a little exercise called Zero Based Budgeting.  IF you’re adept in finance, google it and do the exercise.  If not, call us and we will do it with you, but “JUST DO IT” as Nike says.   

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