You trust a doctor to advise you on physical systems like blood flow, so trust a business expert to advise you on business systems like cash flow.
Cash flow is as vital to your business as blood flow is to your body and if it is not balanced and healthy, critical systems start to shut down. Since there are fewer aspects of your business more important to success than cash, you should make sure you take some time to understand the best ways to manage it, taking advice from those with more experience, ideally. It is possible to look financially healthy on paper only to end up as a business or franchise failure rate statistic because the cash going out exceeds the cash coming in.
Without a comfortable cushion of money saved, making your business work is dependent on your skills when it comes to governing the delicate nature of cash flow as your business grows. Clearly, when cash isn’t available to you, things like paying bills, salaries, making investments and purchasing essentials from vendors become extraordinarily tough, leading to debt…or worse.
A study by U.S. Bank (a financial services company) discovered that up to 82% of small businesses and start-ups fail as a result of poor cash flow management. This means you can have all the business savvy in the entrepreneurial world in every other area and build a nice client base; but if you neglect your own cash flow, your business is still in trouble.
The good news is that there are experts in money management willing to advise you as you gain an understanding of cash flow and a desire to master it; and some of the best of those experts are attached to decades-long established franchise opportunities.
Cash Flow Education: Profit is not the same thing
Profit is not synonymous with cash flow which means those looking at profit and loss statements to monitor cash flow are going to be unintentionally but seriously misled. You must consider things such as inventory, accounts payable, debt services, accounts receivable and capital expenditures as you decipher the truth about your cash flow. It takes precision focus on all of these vehicles of cash flow in addition to monitoring your P & L statements in order to take command of your money and make the best decisions. The problem with a hyper-focus on P & L is the fact that you can know you earned profits – or have experienced losses, but that is not equal to knowing what is actually happening to your cash. Since profit is revenue with expenses subtracted, invoicing your clients for products and services they bought creates revenue on paper. However, you must follow-up and make sure to actually collect on that invoice in order to have the cash.
Making sure you have a positive cash flow to generate real profit is what gives you enough cash to fill in all the needs of your business from paying vendors and employees (which makes sure your products and services can keep rolling out. Selling your products and services is what your business is all about, but if you don’t have the cash on hand to produce, you won’t get your profit, so structuring your money management in order to have a positive cash flow is just what you need to grow a lucrative business.
You always have the option to borrow money, but having cash at your disposal protects you against foreclosures or loan defaults. Be familiar with the distinction between cash “flow” and cash “position”. No one challenges that having cash at your fingertips is vital, but cash flow represents your ability to generate and use cash to your advantage when you need it.
- PRO TIP: “You can be very profitable and still be broke. Cash flow is simply the money flowing in and out of your business. According to HSBC, ‘Even a profitable business can be undone by poor cash flow management.’” – Matt Peretz, Minuteman Press International Vice President
The old adage of sticking to your budget…
If you want your business to have the best chance to make money, you must watch the bottom-line and strike a balance between the necessary costs that will benefit your growth in ways you can measure, considering the cost vs. benefit of every expense. There are going be sales people more than happy to take your money for things you don’t really need as a new business owner, so remember that everything you spend is taken away from your profit margin and therefore, must serve your growth in the long run. Business advisors and mentors that you can trust will play a vital role here (it is also a strong reason why many smart entrepreneurs choose franchise ownership, for exactly this sort of guidance).
So take a peek at your revenue forecast and anticipate all sorts of conditions and from there, create a budget that makes sense…and stick faithfully to it. Consider when you can realistically break even and know that expenses will “surprise” you sometimes which necessitates going back over your projections to calculate how those expenditures will hold-up your break even timeframe. You might decide that purchase decisions you were considering are actually impulse spending temptations and decide to turn them down to stay on a faithful financial track.
Pick up a torch, light it and go after past-due receivables!
One of the quickest ways you can put a crimp in your cash flow, particularly for small B2B business owners, is by letting unpaid invoices collect dust, instead of collecting the cash. If you are sitting on your laurels when it comes to collections, you are putting your business in dangerous territory. Unfortunately, if your business doesn’t have firm late-payment rules and penalties with collections policies clear and functioning, clients tend to take advantage. If they know they aren’t going to hear from you when a payment is past-due, you will be relegated to the bottom of their list of those they intend to pay.
Establish and stick to strong policies with your clients that include late-payment penalties (or incentives for early payments) that are reasonable but absolute, with payment reminders and follow-up calls so they know you “ain’t playing” as the saying goes. No matter what, get those invoices paid.
Pete Scaglione, Minuteman Press International Regional Vice President in Texas, is readily available to assist franchisees within his region, so Minuteman Press franchise complaints about cash management are few and far between. He advises the following for good financial flow, “Businesses don’t typically go out of business because they don’t have the work. They get into that kind of trouble because they run out of cash. You can’t pay rent or employees with credit cards.
Take these 5 tips to help keep your cash flow healthy with a check-up from Pete Scaglione:
1. You must watch those receivables and collect on your terms, using non-interest credit.
2. Establish payment terms with vendors and make sure you have that line of credit when needed.
3. Don’t be so eager to pay early unless there is a significant discount.
4. Your new customers should pay on delivery or put half down.
5. Do not let jobs linger on and on. If you start the work and there’s a hold, bill for what you have done.”
When everyone does their part and feels a personal stake in keeping the business and its cash flow healthy, it all comes together
- PRO TIP: Help your team develop an appreciation of cash flow and its critical role in the health of the business that fills their wallets on payday. Those at the front counter or out selling for you should not only aim to make the sale, but to be on top of those invoices and well-versed in proper procedures to increase the odds they are paid on time. Also, your production staff needs to understand how important it is to wrap-up projects in good time so the final invoice can be furnished and the books can be closed.
Do not be disheartened if you have struggled with balancing cash flow, rather be prepared to give it regular checkups for good financial health
Businesses of all sizes can find money management to be a challenging juggling act and wise ones seek more experienced mentors for advice on how to put systems into place. Those fortunate enough to have a tried and true system of cash flow management are usually franchise owners who have decided that struggling with cash flow is not necessary. They choose to engage support that comes from corporate and local franchise representatives, arming themselves with advice and applications designed to relieve stress and guesswork as clients accumulate and the amount of cash to manage increases.
Staying on top of your money is a conscious effort. Matt Peretz advises, “One of the biggest mistakes new owners make is neglecting their bookkeeping. I suggest that new owners spend some time each day (typically after business hours) to update their books and keep track of receivables and payables. If you find that you don’t have time to do this yourself and start to get behind, hire a bookkeeper. If you don’t have a clear understanding of your cash flow, you can easily over-extend yourself and get into hot water.”
Turning to trusted financial experts or, if you are a franchise owner, relying upon best practices for bookkeeping will help you stay on a steady financial path with the ability to adjust as needed so your cash flows healthfully…and in the right direction.
To learn more about joining the #1 rated Minuteman Press franchise family, call us at 1-800-645-3006 or simply fill out the contact form on this page.