Because if your business were a living person, then turnover and profit is like food and water but cash is the air your business breathes and it can’t survive without it for very long at all.
So I’m going to minimise the theory of why cash shortfalls happen get straight into recovery techiques.
But first some necessary basics…
Introduction
A major complaint of all small and medium sized businesses is that they are under-financed. This is often true and happens for two reasons:
- Small and medium sized firms are inherently riskier than big ones, which limits investor appetite to invest
- Most firms do not have the security they require to borrow the money they need
This leads to a shortage of something called working capital, which is the amount of money it takes to bridge the gap between when you have to pay for something to be produced and when you can collect the customer’s money.
As the popular saying goes:
‘Turnover is vanity, Profit is sanity, CASH is the reality’
Sources of Cash
When people think about sources of cash for a business they usually skip mentally to the borrowing requirements such as the overdraft, asset finance or investor contributions.
But exploring external lines of funding should be the ‘end game’ not the start of solving a cash shortfall.
This is because cash-flow pressures, where they exist, are a symptom of other things that are happening within the business and you should never go ‘outside’ the business to borrow more money unless you have sorted out and can be absolutely sure about what is causing any cash drain in the first place.
So in my next few posts I’m going to concentrate on the ‘internal’ sources and drains of cash for a business, which occur as a function of trading, and what can to be done with them to improve cash flow fast.
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August 21, 2009 at 4:46 pm |
Sounds like great advice but where can I get help with putting it into practice?
Kisten