Weathering the Economic Storm - Part 4 - Cash

In part one of the series on Weathering the Economic Storm, I discussed using dashboards to identify the most important performance measures of your business and keeping them in front of you and your management team.  In part two, I spoke about managing your business to improve profitability.  While you should be doing these things all the time, you should pay even more attention to them during a period of economic distress.  Part three discussed reviewing your costs.  Now, in part four we’ll talk about the king of all concerns for small businesses: Cash.

It’s the Cash, Stupid!

In the verbeage of the 90s and the lesson painfully learned by President Bush (41), “it’s the economy, stupid!”  Times have changed and for the worse, but the theme for small business stays the same.  It’s not the economy, it’s the cash.  It’s always been the cash.  It’ll always be the cash.  For small business success, CASH IS KING.  A small business can survive a period of less-than-optimal profitability.  But as soon as a small business runs out of cash, it’s out of business.  If you can’t make payroll on Friday, how many of those employees will show up on Monday and keep working?  If you can’t pay for that last load of raw materials, do you think you’ll get another?  What if you don’t make your loan payment to the bank?  I’ll tell you what, you’re done!

Cash is important for small business success in all times, but especially so during times of economic turmoil.  Look for ways to collect your cash faster and conserve it once in your possession.   A few options to consider might include:

• Collect your accounts receivable faster
• Review your credit policies
• Consider shortening your payment terms or offering a larger cash discount for quick payment
• Postpone expansion plans until the market is stronger
• Don’t build new buildings or add more office space
• Postpone any risky projects
• Delay hiring new employees unless they will directly improve cash flow
• Reconsider expanding into new sales territories

In some cases, your business will need to do new things and expand in some ways.  The key is to postpone any risky ventures until times are better.  Those ventures that you consider worthwile need a rock-solid and fast ROI to prevent excessive cash drains.  When you do dicide to try new things, make sure you have ample cash reserves in case your time-frames lengthen and cash doesn’t flow as you anticipated.  Remember, iIt’s difficult enough to profitably expand and conserve cash during good times, much less during bad times.

NEXT AND FINAL INSTALLMENT:  Relationships