RAINE MAGAZINE Volume 8 | Innovate

Cash Flow is King
By Noelle Frieson
cash flow is king
According to the Small Business Administration, 56% of
businesses fail in the first five years. Most would think
the primary cause of failure is the inability to garner a
profit; but surprisingly, it’s not lack of profit that kills most
businesses, it’s the lack of a positive cash flow.
Cash flow allows your business to run on a day-to-day
basis as well as purchase goods, pay employees and your
vendors. The biggest mistake many entrepreneurs make
is counting receivables as cash flow. Many companies that
anticipate a profit from their recorded receivables end up
being cash poor. For many, making a sale doesn’t mean
you will receive the cold, hard cash at that very moment.
Let’s start with the difference between profit and cash
flow. Profit is the difference between sales and expenses.
Sales and expenses are calculated at the time the sale is
booked or purchase is made, not when cash exchanges
hands. On the contrary, cash flow is the difference
between actual cash in and actual cash out. Recognizing
the difference can help keep your business both profitable
and open!
What are some vital ways to stay on top of
your cash flow?
BECOME OBSESSED WITH YOUR ACTUALS
Business owners tend to overestimate sales and underestimate
expenditures. Keeping track of the week-to-week, day-to-day
actuals, gives business owners a snap shot of their financial health at
that moment.
CONTROL YOUR PAYMENT PROCESS
It is always best to get payments upfront for any goods or services.
However, sometimes that can’t be done. In my business, I have found
letting clients pay in installments helps us close sales. Installments
can leave a business lacking cold, hard cash in anticipation of the
next payment. If you must invoice clients or allow them to pay
over installments, you will want to control the payment process.
Check the financial health of your clients before you extend credit.
Sites like dnb.com (Dun & Bradstreet) can give you reports on the
financial health of your clients for as little as $39.95. Also, have
your clients pay by credit card with a clearly defined installment or
payment dates in place. By having a credit card on file for payment,
it saves your receivable department the task of contacting clients for
payment.
DON’T SIT ON CHECKS
Many businesses will deposit checks on a weekly or monthly basis.
This keeps the business cash poor. Deposit checks the day they
come in. Daily trips to the bank not only keep money flowing
through your business, but it helps you stay on top of your liquid
assets.
MAKE RECEIVABLES A PRIORITY
If you are the owner of a small business you may be the CEO, Sales
Representative, Office Management, Accounts Receivables and
Payable departments; all in one. It’s easy to neglect late payments
from your clients or give them more time than your policy states.
Begin the collections process the first day a payment is late. And
don’t continue providing services if bills remain unpaid.
About Noelle Frieson: Noelle is the principal
partner of Prosperiti Partners Inc., a marketing
firm specializing in small business marketing and
recruitment. You may reach her directly by emailing,
noelle@prosperiti.net.
The success of your business depends on your executive team being
completely committed to the business financial health. Even though
the end goal is profit, cash flow is still king. But don’t stress. By
following the simple steps above you can keep control of your cash
flow and reap the fruits of your labor in profit.
Raine Magazine Vol. 8 - Innovate 43