The basic purpose of a business is to make a living for the owner. – Ed Pendarvis
The two major concerns in working with hundreds of small businesses are inevitably cash flow problems and sales. Business owners seek out the Florida SBDC Network when they have a cash flow problem or sales are declining, stagnant, and struggling. This is not uncommon.
In a 2014 Federal Reserve Survey of more than 2,000 small businesses, it showed that 29 percent had difficulty in attracting customers, 19 percent had difficulty with credit availability, and 17 percent had uneven cash flow issues. Without adequate cash flow, business owners struggle to pay themselves and make a decent living from their business.
Often, businesses are seeking advice on how to get a bank loan or a source for their cash flow challenges. Unfortunately, most banks do not want to lend money to a business that is not generating enough cash flow because they are uncertain as to how the business will find the cash to pay back the loan consistently. One solution is to get a line of credit at the bank when you don’t actually need it.
Business owners who do not manage cash effectively, will eventually have cash shortfalls so desperate that they make poor cash decisions such as using high interest credit cards, or not paying bills.
Finally, when all sources of funding are exhausted, the business must be closed or sold. Try not making a payroll some time, and telling your employees there is not enough to pay them. Your employees will never trust you again, and productivity will plunge.
Properly managing the cash flow and expenses of the business is the key to survival. Too often business owners are focused on the wrong things, such as operating the business, keeping customers happy, or employee management issues. However, if the cash is not flowing, these tasks are not the best use of the owner’s time. Weekly management of cash, accounts receivables, accounts payable, lines of credit, and knowledge of how money moves through the business is critical to survival.
Often, when cash is a problem, there is a lack of focus on sales. Sales are consistently a challenge for small businesses and can be very difficult for owners who are very good at delivering the good or service they provide, but not so great at selling it. Pricing may be an issue as well. If you haven’t raised prices on your customers in the last three years, you are now charging 9 percent less than you were three years ago. That is because inflation is 3 percent a year. So, your costs are going up, but you aren’t raising your prices with inflation.
Here are the top excuses from business owners for not selling more:
- I don’t have time to sell because I am too busy running the business.
If you don’t sell, who will? And if sales don’t improve, you will be out of business. - We are working on a new web page to bring in new business.
This rarely works unless more than 50 percent of your sales revenue is from an online business. Magic web pages do not exist. - I can’t raise prices on my customers because I will lose them.
You don’t want customers that don’t understand you need to raise prices occasionally.If you don’t raise prices, you will have cash flow problems eventually and be out of business. - I don’t understand the cash management of the business.
You must learn everything you can about cash flow management from your accountant, banker, and advisors.
Cash flow management and sales are your top priorities. If you don’t master them, your business may eventually be in trouble and not around in the long run to provide a living for you and your family.
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