Retaining Solvency in the Face of Easy Money

Steve O'ConnorBusiness Operations, Cashflow, Small Business Financing, Small Business TrendsLeave a Comment

Growing a small business takes longer and costs more than small business owners want, but effectively managing cash flow can help you remain solvent.

Choosing to become a small business owner is incredibly challenging and forces you to wear all kinds of hats, but this choice also means you’re supporting the broader economy. You decided to start from the ground up… and I love watching business owners succeed.

Cash management is crucial to your success. However, your cash management strategies can make or break your business. Perhaps when times are good, you’re not really thinking about your cash flow or cash management strategies. When the need for additional funds arises, you have options—but you have to think through them carefully.

When business owners feel the cash crunch, it can be tempting rush off and try to take on several capital advances in a short timeframe, and then find someone to roll them up into one payment before they’re back looking for more capital three months later. This is not a sustainable approach to financing. In these situations, business owners can become so overburdened with “easy money” that they lose sight of the bigger picture.

I came across an article in Inc. Magazine that mirrors my thoughts on cash flow. They published that “…in some ways, managing cash flow is the most important job of business managers” and offer these tips to help address temporary cash flow problems:

  • Create a realistic cash flow budget that charts finances for both the short and long term.
  • Increase efforts to collect outstanding payments owed to your company.
  • Offer small discounts for prompt payment.
  • Monitor and prioritize all cash disbursements.
  • Contact creditors and attempt to negotiate mutually beneficial arrangements that will help your business to survive the cash shortage.
  • Liquidate superfluous inventory.
  • Assess potential cuts to your operational expenses.

Becoming a successful small business owner takes longer and costs more than you hope for, so it is important to build up a solid financial plan for the future. For example, we have a client who owns a lighting products manufacturing business. He is meticulous about everything he does and truly has a great business. The plant is pristine, people work very hard, and everyone is very proud of the product and quality. He has great plans to grow the business—but his debt load is preventing that growth. By working together, we were able to help him pay down this debt with a series of short-term solutions. By more effectively managing his cash flow, this client is well positioned for growth now. At Wellen, we like to help solve the problems small business owners face, and a fundamental tenet of how we do business is to be careful about our mutual cash management strategies.

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