Hardball: managing cash flow in a tough economy

The SBA reports that insufficient capital is the top reason small businesses fail. Then follows lack of experience, poor location, poor inventory management, and over-investment in fixed assets. Bottom line: Every employee’s job is only as secure as next week’s bank balance, and the number one threat to company survival is cash flow disruption.

Here’s how to best prepare your company to weather tough times.

1. Click here to download a free cash flow projection worksheet from Microsoft (Excel). Filling out this survey is the easiest way to predict whether or not you should expect to have enough money to see you through narrow margins in the immediate future. Do it as often as weekly during tough times, and involve as many people as necessary to get the correct information entered. It’s laborious, it’s not fun, but it’s your best forecasting tool.

2. Encourage customers to pre-pay, pay on time, or pay sooner. Can you offer a cash discount incentive for prepayment? Ask for a credit card payment now versus a check “in the mail”? You have accepted the role of “banker” for every slow-paying account on your books. Are you or your employees willing to support another business at the expense of your own paychecks? (Hint, employees won’t do it for long!)

3. Assign collections to a polite but persistent employee and have that person, at the very least, call weekly. Offer payment programs for your best customers, and put your least profitable slow-paying customers on a future COD program until they show a pattern of prompt payment.

4. Evaluate your own payment history. Pay on time if possible, but not early, and side-step discounts for pre-payment if cash on hand is inadequate for future obligations. Talk to creditors about partial payments, if you are a company that has seasonal or up-and-down sales cycles. Ask, ask, ask, and preferably while it’s still a suggestion and not an apology.

5. Decide in advance that if your cash reserves fall to “x”, and you have no other funding options, your action will be “y”. If possible, communicate to your staff that cash flow may be challenging, and sales/collections have to be $xx to keep the full compliment of staff employed. Employees often have innovative ideas when made aware of the seriousness of the situation.

However, if you decide the only leeway is staff cuts:
a. Consider furlough. The shorter the “no cash” cycle is, the easier it is to furlough some or all employees for anywhere from a full day to a week. The business officially closes, in the “all” example, with unpaid leave (versus PTO or vacation leave) the only option.
b. Cut as many people as necessary to get you beyond the pale. It is demoralizing and upsetting to go through staff cuts; worse to go through one and then queue up for the next. Cutting two people sooner might prevent cutting five people over time, and may actually lesson staff insecurities. If you have to cut staff, be realistically bold.

With all of this tough talk said, next week let’s discuss telecommunications options and the questions to answer before putting implementing it in your business.

About Jody Glynn Patrick

Jody is President of Glynn Patrick & Associates, which provides management consulting, executive coaching and strategic planning services. She is Publisher Emeritus of In Business magazine, which she published for 17 years. Selected as the “U.S. Business Journalist of the Year” in 2007 in Washington, DC, by the U.S. Small Business Administration, Jody has been a business reporter, editor, radio talk show host , and has won other state and national journalism awards. At the same time, she has helped corporate clients grow their businesses -- the basis for her practical coaching advice here. She also was the 2005 Athena Award recipient for her leadership role in mentoring other professional women. Jody will be talking with you weekly on TDS’ blog to share her insights and tips from the C-Suite perspective. Follow on G+.


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