The real challenge of any entrepreneur is to be resourceful, with their resources.
Very few entrepreneurs have unlimited resources. Most smaller companies typically go insolvent due to cash-flow problems within the first few years.
I remember when I started my computer company, we were able to ramp up sales far faster than we had imagined. Our problem then became... trying to get money in, from customers, and having to pay money out, to suppliers.
We had money outstanding, which was an asset, but we struggled to get that money in.
At the same time to be able to sell more products, we had to pay our suppliers COD to be able to get that product the best possible pricing.
So in between the getting money in, and the money going out, cash-flow became a problem. Many people think that companies go insolvent due to cash flow problems.
The real challenge for problem is a symptom and not a cause. The real cause is with the entrepreneur and their team, having the wrong mindset... and not minding the important parts of being in business, in today's tough times.
It is not easy to predict and ensure that money comes in on time. On top of that, because of increasing competition, margins are a whole lot smaller. This means that cash resources are typically restricted.
In coaching, I see entrepreneurs wanting to grow as fast as possible. I see them taking on staff. I see them taking on liabilities, like leases. I see them spending money on stuff that's not going to generate or accelerate, sales and cash flow.
The truth is being an entrepreneur in these tough times requires astute financial management, smart people management, high levels of resilience, persistence, passion, and determination.
On top of that, a real strong focus on managing cash-outflows, and inflows, is the life blood of the business. For some it's easy to increase sales without the requisite cash-flow because they have accounts with suppliers.
Problems arise when their accounts are into 30,60 and 90 days, and the suppliers now are instituting legal proceedings, to recover outstanding monies, because you are overdue.
Smaller companies struggle, whether it's getting their money from corporates, or smaller businesses, due to the fact that it's not easy to afford a full-time staff, who focus on ensuring cash flow is strong and stable.
It’s advisable to have a business plan that is sensible, and financially sound, because, with this, you're able to make projections, monitor, and manage, sales, costs, collections, and growth.
All too often the entrepreneur is so busy running, juggling all the balls, and wearing all the hats, focusing mainly on creating sales.
If they’re not financially astute, they may wake up too late, to find that they're in "hot water" with the cash-flow, collections, and outstanding supplier payment due.
My advice and wisdom are to be very clear, right up front with your customers, that payments and the payment terms, are to be fully adhered to. And that there may be consequences, should payment terms be exceeded. Whether those be phone calls or legal action.
The "oxygen" in your company is cash flow.
You may have assets. You may have sales. But if you have no cash to pay your expenses, staff, overheads, and to buy new stock, and equipment, you very soon will die due to lack of Cash-Flow OXYGEN.
And clearly, that's not the goal of being a successful entrepreneur, in the long run.
By Tony Dovale