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.