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  • Peter Wiesner

Avoiding the Cash Crunch!

Many small businesses are under capitalized. This means that the owners have ventured into business without sufficient resources to overcome the startup phase of the business. In today's economy, the startup of a business can be as long as seven years.

Therefore, if one does not have the deep pockets to survive the startup losses, then an even larger loss in liquidation can occur. One frequently hears the words "if I only had three more months then I would be out of the woods," which is the symptom of an under-capitalized business.

Some of the things that need to be done when experiencing a cash flow crisis are as follows:

a. Prepare a cash flow statement on a daily, weekly, monthly and quarterly basis.

b. Focus on problem receivables and either reduce credit available to slow paying customers or sell the tardy receivables to finance companies that are willing to buy them at a discount. This will provide you with short term cash flow and may save resources in the long run by removing cash problem clients that may themselves not come out of the startup phase.

c. Review the client base and look for opportunities to service or sell products that they may have on a wish list. Product sales that will impact quickly on the client's bottom line will mean they can afford to re-buy sooner. This could be a successful short term strategy for adding sales faster. By improving the customer relationship and being more aware of customer needs, then improved customer service should result.

d. Improve your marketing plan. Most owners in a crash cash crisis will cut back on the marketing budget in order to save dollars. This is usually a short term measure which has long term implications because future sales will be lost.

e. Focus the organization on what you do best. At times, some organizations try to be too much to everyone and the companies lose sight of what they were good at in the first place. Thus, a strong focus will concentrate on the core customers and should improve overall customer satisfaction and your profitability.

f. Get professional help! Many businesses fail because the owner was pound foolish and penny wise. Thus, the use of professionals (lawyers, accountants, bookkeepers, marketing consultants, and bankers) are not even considered by some or are very undervalued by others. The independent advice and experience of the outside services will make the business better, only if one can take constructive criticism. A positive attitude to change should lead the improved performance and/or bottom line.

g. Remember, all operations need advice and don't sell yourself short. Your future is too vital to get business and tax advice from a friend of a friend that had a drink or two at a party!?! Do yourself a favour and make the call before it is too late.

h. Shift the focus from sales targets/quotas to sales and margin analysis. No point in doing sales just to make a sale. This occurs when it is a very low margin sale or below the variable costs. Thus, sales must be a win/win for the customer and organization.

Thus, successful companies in the 21st Century will be the ones that survive the startup phase problems, have a strong professional team, have sufficient working capital and work harder than ever before!

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