12 Things to Remember When Facing Cash Flow Problems

There are a few different financial aspects to achieve success in business. Even running profitably can see a business fail if it doesn't adequately maintain its life-blood, the cash flow. Likewise, a business that has plenty of cash doesn't mean it's successful if it's not run profitably. There are several areas to consider when you're facing a cash flow problem. Each on their own might not provide the solution but together you might just be ok.

There are many reasons a business may have cash flow problems although profitable, and each of these can be managed to help you get through these trying times. Keep all of these in mind when managing your cash flow. Unexpected things happen, external factors also impact you. Plan for the unexpected and when it happens, address it.

• Debtor Payments - late payers putting business at risk or too generous terms
• Paying Creditors - not utilising/extending terms or over-trading
• Capital Purchases - Investing funds into capital equipment
• Carrying Inventory - Holding too much stock, tied up funds
• Seasonal Market - Unprepared with working capital for the quieter seasons
• Unnecessary Spending - Continuing to purchase the luxuries
• Dividends - Withdrawing reserves at the expense of cash flow

Plan for the unexpected and when it happens, address it.

It is very important for you to remember everyone that matters wants to see you get through it and be successful. Everyone is on your side!

Customers buy from you because you're giving them value and they want to be able to access more of it.

Suppliers get their revenue from you, and hope to continue to do business with you.

Employees besides earning their living through you, want to be a part of a winning team and have more opportunity for growth.

Family and friends might not always show it and be your harshest critics but they are certainly behind you wanting to see you do well.

Competitors might not care so much but they don't want to be a part of a struggling industry either and look to feel confident in their own future.

So when you deal with each of these, understand their motivations that support you getting through the cash flow challenge. Also recognise the risk they face and consider how this risk is either minimised or how you can help with their own objectives without putting them at any further risk and you will find most will only be too happy to work with you.

For example, a supplier wants to recover the debt you owe them. They worry about this risk and need to ensure their own cash flow is properly managed. They want to continue trading with you and ceasing trade is just a method they may use to put extra pressure on you to pay.

One real client story

In the 1990s I had a few clients I'd support with financial management services. This particular one was an IT training organisation with clients from large federal government departments to private corporations as well as smaller businesses. They had work flowing well and the 3 directors had a good reputation. There were staff as well as several contractors providing the training but the company ran into cash flow problems. Their clients were pushing out payment terms, especially the government agencies where it was often up to 60 days from the end of the month.

I happened to be in there when some of the contractors sent around the 'big boys' to have a word about payment. I was only in my early-mid 20s and the only one prepared to face them. I just wanted to look after my client and help them through the problem. It's not personal, it's business. We went into the boardroom for a chat.

They were wanting to get paid what was owed, of course. The company wasn't in a position to do that so it was not an option, at least not right then. Plenty of work was there and these guys stopped assisting with the training. I could only see this as hurting everyone. They wanted money for their work and the company needed work to continue. So I outlined the situation and the best for them would be to continue providing the services. They didn't want more risk and stopping their service created more of it as it became less likely they could recover the debt. It also meant they couldn't allow the level of debt to get worse.

A frank discussion on the situation and they agreed to continue their services providing they were paid for the ongoing work as it was delivered. Everyone could continue to earn money and the debt would slowly be tackled as funds allowed. Although some 20 years ago now, I remember this one as it was a surprise to everyone including myself. Two fellows that were angry, looking to intimidate and expecting to be paid then and there had not only walked out without a cent but were agreeing to continue providing services and feeling more positive about their ongoing relationship.

The lesson I taught myself that afternoon... focus on the concerns and needs from everyone's perspective and aim for the best outcome for all through open communication. You are not facing the issues alone. Others are involved whether they like it or not and they can help you pull through it, for their own interests.