THE CASHFLOW CRUNCH

What IS a ‘Cash Flow Crunch”?

 

If you are a business owner, business has been slow (non-existent) for a number of months. You have exhausted your bank line of credit, and your monthly P&Ls are not that great. You most likely have experienced a cash flow crunch many times - 

 

• Moving along with your day-to-day business and then your sales suddenly drop off.. Not   enough money available to pay your overhead.  Cash Flow Crunch!

•  Your best salesperson closes on a big order! Great! However, how are you going to pay your suppliers to ramp up for this big order with potentially huge profit potential? CFC!

•  You “forgot” to make last month’s deposit for your employees’ withholding taxes. You ended up using those monies for a bonus sales promotion. You are now scrambling to find the cash to deposit. CFC 

• Business is great; you are in increasing profit mode. Then, your largest customer has to hold off paying you for another 30 days. You were relying on that payment for your building lease payment that is coming due in 10 days. Oops. CFC!

• You notice your inventory keeps growing, but, sales are flat. If you hire more salespeople to help increase sales. How are you going to pay them until sales start coming in? CFC! 

• June 15^th is coming up (quarterly tax payments are due).... Unfortunately, you used that earmarked cash to buy a great piece of equipment that you saw at last month’s trade show. Big CFC!

Calculating an ongoing cash flow forecast is one of the most critical jobs for a business owner to insure gets done. Income and expenses are rarely constant. A CFC needs to be planned for.

"Companies that may appear profitable, but cannot pay their bills, are, in the end, out of business."

Proper and accurate management/tracking of a business’ unique cash conversion cycle helps to prevent or offset a Cash Flow Crunch.

What is the cash conversion cycle?

Simply put, a cash conversion cycle is the period of time for a business to convert its activities requiring cash back into cash returns. This cycle consists of basically, three working capital components: 

1.      Accounts Receivables Aging (and payment terms for the customers to pay)

2.      Accounts Payable Aging (payment terms from venders/suppliers, etc..)

3.      Inventory/materials Turn Rate

More on this very important business profit enhancement issue in an upcoming post…

Contact me personally for a no-obligation review of your current cashflow issues.

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Do you know a business owner that has "dead" inventory? or equipment?

This type of inventory is  called captive profit. We have a program in place to turn this inventory into a cash  flow solution. Contact us today, for a FREE consultation.