Cash Flow

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I am lucky to be able to spend time around other entrepreneurs, which is both inspiring and a reality check.  Recently, I was visiting with a group of talented, ambitious business owners at a dinner when the subject of managing cash flow came up.  The reality check for all of us, who are in a wide variety of businesses and business development phases, was that we all have experienced cash flow management issues throughout our careers.  The inspiring part was seeing how gutsy, determined business builders always seem to come through.

In thinking about my own story, as a serial entrepreneur with a number of businesses over several decades, I realized that I can’t really remember when managing cash flow wasn’t important and sometimes critical.  I’ve learned a few things along the way, and I thought I’d share them here.

  1. There will always be a cash crisis. There always is at some point.  Know it, believe it, and plan for it.  That all helps when the crisis comes.
  2. Get prepared. Having a Plan B and C really helps.  For me, part of planning is a great banking relationship.  I have found setting up lines of credit when you don’t need it is pretty easy.  Keeping your banker informed of your progress is appreciated.  Remembering that bankers make money only when they lend is useful and borrowing even when you don’t need to builds a relationship.  Always ask for more than you need.
  3. Pay the business first. One of my partners taught me this many years ago.  Set a “required” profit level and pay the business at least that much in profits before paying yourself.  This creates discipline and it builds working capital against the day you need it.
  4. Don’t squander money in good times. Just look at what oil and gas companies do when oil is $100 a barrel.  Never do that!
  5. Always remember profits and cash aren’t the same thing.
  6. Don’t make business decisions for tax reasons. You get to pay the tax eventually, and later may really not be better.  Make good decisions because they make business sense, not tax sense.
  7. When you borrow, try to borrow against assets not cash flow. You get better terms.
  8. Conserve cash. Make it a habit.  Pay bills in time – just.  Rent instead of buy when cash is needed for operations.  Don’t take money out of the business just to put it in your personal account.  Keep it where you can use it.
  9. Collect your receivables on time all the time not just when cash is tight. Then, it probably won’t get that way.  Don’t be your customer’s banker or you’ll need one, and his terms won’t be as generous as yours.
  10. Don’t sit on inventory. If you’re getting fewer turns than you should, slash your prices, get cash, and get it invested in something you can make money on.

If you’re in business, you’ll have a cash crunch sooner or later.  When you do, here is my last tip:  don’t give up!  Sometimes things can be desperately bleak, but they can and do turn around.  Are you an entrepreneur?  Then, managing cash flow is just part of the never ending daily flow.

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