|
Small Business Resources
I’m really confused. My business has been growing. I am selling like crazy, but I keep facing a cash crunch and my banker is getting ticked off. What am I doing wrong?First off, congrats on growing your business and succeeding in sales. That is a great foundation to build on. With respect to the cash, there are likely one or more of a few things going on. First, look at your margins. Selling a lot is great, but if it is priced in such a way that you are losing money, those sales aren’t actually serving you. Take a look at the Price Discount vs Price Increase sheet in the tools I have provided. Second, look at your receivables vs payables and the days out for each. In my experience where companies run into cash problems in growth it is often a function of both margins and a problem called “The Cash Gap”. The cash gap is the lag between the time you pay for the material/services needed to deliver and the time you collect from your customers. If you are paying within 30 days and collecting at 60 days, during growth, your cash will dwindle while profits increase. Collect up front, give incentives for prompt payment, require payment terms – whatever it takes to get the cash in the door faster. Then you may have to look at extending payments to suppliers. I don’t really like recommending this as it isn’t your supplier’s fault if you are not taking responsibility for collections. The more you can ensure your business is being run properly, the less you will have to ask others to cut you a break. However, until then, if you can arrange with suppliers a certainty of payment with, say, 45 days, that will help. The final area to look at is inventory. You didn’t mention what kind of business you are in, but if you sell product, you will want to look at how much cash you have tied up in inventory and how long your inventory turns are. If they are long and you have a lot of cash tied up in it, you may want to look at improved inventory management.
You have a question for our expert Warren Coughlin? You too can
ASK A QUESTION!
|
| Coupons Deals Expired Deals Features Freebies Forums Links Retailer Ratings Marketplace Canadian Price Comparison |
Copyright © 2000 -
RedFlagDeals.com, a division of Clear Sky Media, Inc. All rights reserved.
(Terms of Use, Privacy Policy)
