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Where's the Cash?

Provided by Van Lanier, Content Partner for the SME Toolkit

How to Never Run Out of Money

As any small business owner knows, it's a struggle to survive when cash flow gets tight. Creditors want their money; employees must be paid; and the landlord is at the door.

What to do?

You must take charge and calm things down. It's up to you to make good decisions and you can't do that when you're constantly fighting a cash crisis.

Every business owner knows that a lack of cash threatens his business. You need time to think. Wouldn't it be great to know each day that you had enough money to get through the week?

Try this: use a tourniquet-like cash budget to stabilize your business and control the cash.

Here are three important reasons why you should try this technique:

Cash is the lifeblood of the business. Run out of cash and your business will die.

Here are some tips to maintain a positive cash balance:

Never spend more in a week than you start with on Monday, regardless of how much you might ultimately collect that week. For instance, if you began this week with $50,000 in the bank, that's all you can spend this week, even if you collected $80,000 on Thursday. Adjust your payables to fit your beginning cash balance for each week. Only pay out what you have at the beginning of each week, not what you collect during the week.

Make a simple cash budget to guide you. Tear up all written but held checks in the drawer. Reconcile all bank accounts and start with an accurate balance. It's far safer to deal with facts, not fiction, when in a cash crisis.

Sign every check that leaves the building. This will sharpen your focus. Put all the cash in one account so it's easy to keep track of and hold weekly cash disbursement meetings with your staff. Keep your key people informed.

Be conservative in estimating collections. Now is not the time for rose colored glasses. Separate short-term from long-term. Who really owes you how much in the next 30, 60, and 90 days? Analyze last year's cash collections by date and by customer. Compare last year to this year, by customer. If not sure or your records are out of date, use 90% of last year's collection performance to estimate this year's collection performance.

Cash buys time to find out what went wrong. Here are three ways to buy more time by creating more cash:

Spend less cash. This seems obvious, but many owners simply forget or don't want to make the hard decisions. Fire deadwood employees. You know who they are. Eliminate perks and all non-essential expenses. Pay only life-threatening vendors. These should be at the top of your list.

Collect more cash. This, too, should be obvious, but it often gets ignored. Call every customer and ask for payment of open invoices. Factor eligible receivables; send past due accounts to collection. Ask your accountant about potential tax refunds, lease abatements, and other cash concessions.

Control purchasing. Change the culture of buying when you think you need it. Cancel all purchase orders. Determine exactly what is needed to survive for 3 months. Personally sign every new purchase order. Buy nothing you don't absolutely need, regardless of special deals offered by suppliers.

Cash lessens uncertainty and improves confidence. Transfer some of this "good news" to your staff. Hold weekly budget meetings with your key staff. Involve them in decision-making and reward them for performance. Your people must be able to share your confidence.

Control the cash. In addition to signing every check that leave the building, you must know your financial numbers without hesitation. Be certain.

Be the leader. In every crisis, people look to leaders to plot a course away from danger and set the pace. This is your job. It cannot be delegated.

Maintaining a positive cash balance requires discipline and sacrifice. It's worth it, because the lack of cash is the greatest threat to small businesses in trouble.

You can maintain a positive cash balance by never spending more in a week than you have on Monday. This is real power. And, it's the key to stabilzing your businesses so you can make informed decisions about what to do next. Try this technique. It works.

Van Lanier is creator of Turnaround RoadmapTM- a management method that provides know-how, guidance, and support for underperforming small businesses. Get a free turnaround guide and learn more at

Copyright © 2016 Van Lanier. All Rights Reserved.
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