Business CPR: Cash, Prospects and Revenues
The first option is to devote more of the current resources to getting the projects done, if they can move from using 40% of their resources to 90% of their resources on a project they can finish in six weeks instead of ten weeks. They are already paying for these resources so using them to finish the project makes sense.
Secondly, they need to begin communicating with existing vendors to see if terms can be extended or payments reduced. If they can get payment terms extended from 30 to 60 or even 90 days, then cash on hand can be used to meet payroll and finish the projects.
The third thing that must be done is that all unnecessary expenses, no matter how small, need to be curtailed. For example, unavoidable travel must be tightly controlled, by moving from four-star hotels and direct flights to three-star hotels, shared rooms for those traveling, and flights on lower-cost airlines. Planning travel and booking in advance online will also have an impact. Activities that are not about cash, prospects or revenues, need to be minimized. This change in operational focus for the short term may also require temporary layoffs of staff and/or permanent staffing reductions.
If you have reached a point where cash is non-existent and the next inflow is scheduled far beyond when you need to make your next payments, then your options are tougher and more limited. Your cash position -- how much money you have to meet your bills today -- determines if you'll be able to stay in business.
Many business owners and managers have learned the hard way that denial and hope are not effective strategies. You must manage your cash, especially when in start-up mode or during tough economic times. The earlier you can recognize an upcoming cash flow issue, the more options you have to prevent or mitigate it. If you have cash flow issues, you have to be focused on managing the inflows and outflows closely on a daily basis. Too many organizations wait until the crisis is upon them and they have already hit the iceberg.
--By Lea Strickland
Lea Strickland, M.B.A., is the founder of Technovation Entrepreneur, a program that helps entrepreneurs turn their ideas into businesses. Strickland is the author of "Out of the Cubicle and Into Business" and "One Great Idea!" She has more than 20 years of experience in operational leadership in Fortune 500 and Global 100 companies, including Ford, Solectron and Newell.