If you’re struggling like many businesses, you know the
myriad of challenges exacerbated by the economy. However, despite the
challenges, it is possible for businesses to successfully complete a financial
turnaround.
First, you might have to put on a different set of glasses –
see this economy as a marvelous opportunity.
But it’s not just a matter of increasing sales. There’s more
to it. Sometimes, I get inspiration from
non-businesspeople like the most revered president in American history, Abraham
Lincoln: “If I only had an hour to chop down a tree, I would spend the first 45
minutes sharpening my axe.”
To sharpen your axe, there are salient areas that need your
focus in order to turn your business around, which include financial,
marketing, and internal operations. For space limitations in this column, let’s
deal with finances. Businesspeople are embarrassed by having to face the trauma
of continuous collection calls. They often don’t communicate effectively with
creditors on managing cash flow issues. So tell creditors you’re working to
correct the situation.
The first objective is to manage cash flow in three steps:
Increase the cash balance. Collect the outstanding accounts
receivable and generate cash from any saleable assets.
Prioritize the cash disbursements. Focus the available cash
toward the must-pay expenses first, including payroll and associated payroll
taxes, and pay other vendors with your remaining balance.
Develop a cash forecast. Project realistic cash receipts by
customer (preferably include the products or product lines) and disbursements
by creditor on a weekly basis for the three months – and monthly thereafter for
a year. This means reducing the revenue and collections in your projection by
10 to 30 percent to make certain the actual results are achievable and you do
not run out of cash. Develop and implement plans to operate and keep you in business
at the lower projections.
