You’ve heard it a hundred times: “Cash is King.” When it comes to growing your business, there may be no other axiom that rings as true. Not having enough cash on hand can kill a growing business faster than almost anything.
Still, managing cash flow is a problem that plagues so many growing businesses. A recent article from entrepreneur.com highlighted five of the worst cash flow mistakes small business owners make and included a rather sober statistic: As many as 82 percent of startups and small businesses fail due to poor cash-flow management.
You can read the complete article here, but let me give you a summary of the five mistakes as highlighted by contributor, Jason Hecht.
- Overestimating future sales volumes
- Engaging in impulse spending during the startup phase
- Being passive about past-due receivables
- Not using a cash-flow budget
- Not keeping a cushion of cash on hand
Cash flow management doesn’t just happen on automatically. It needs to be part of your strategic planning—and it needs to be tracked regularly and discussed by your leadership team. Why?
- Development projects can’t move forward if you don’t have enough cash on hand
- Production shuts down if there isn’t enough cash on hand to keep things going
- Marketing efforts are worthless if you don’t have enough cash on hand to deliver what you promised (which means all the money you spent on marketing is down the drain)
- You can’t grow you business if you don’t have the cash to pay for expansion
For some businesses, cash management simply isn’t part of the company’s “DNA.” Entrepreneurial leaders aren’t always the best cash managers. It’s simply not their strength. That’s when it may make sense to bring in an outside expert to help map out your cash management plans.
Cash is king when it comes to business growth. If you learn to manage it, cash becomes a tool you can use. If it rules you, however, you’ll end up a serf.