A dipping cash flow curve is a cause of concern so much that, for a small business it is enough to have the panic button pressed. Small businesses in their infancies and adolescence barely generate cash flow sufficient for their monthly bills. A couple of lean
months could mean skipping a few vital bills like electricity, mortgage, and salaries to employees. All have the potential to bear heavily on
Your business. Although established and larger businesses may show concern over a dipping cash flow they have different reasons for being concerned.
While discussing the practical ways to arrest a plunging cash flow we will concentrate on new small businesses which lack management skills and/or resources.
Managing A Plunging Cash Flow Curve
Ideally, the best policy in improving cash flow is the letha.combination of ratcheting up sales performance and chasing any account receivables that are overdue. But practical situations do not always permit this. Here are some practical tips that will help you arrest that dipping cash flow.
If you are banking upon profit projection, a growth in profit need not mean cash on hand. Practically, what you can do to realize larger receivables is to break them up into small and convenient invoices which can be collected rather easily. Even your customers wont feel the pinch like they might as when they have to pay in one installment. This regularizes and helps steady your inward cash flow.
You can subdivide some of your monthly payments into weekly payments, if applicable. You can explain your reasoning to your vendors, who might accept the arrangement depending on your relationship with them and your integrity. Additionally, your regular payments will keep their cash flow up, too.
Market erosion is the last thing you want right now. This is the lifeline of
Your business. Identify ways that you could serve your market better. It could be on the supply chain side, which could be eating away the icing on the cake; it could be product relevance or even a quality issue. Act immediately on your findings, beginning with the most pressing issue first.
Review your cash flow projections, which could throw some light on where you went wrong. As most paymen.commitments are based on the cash flow projected, you can make a few corrections to ease things out in the weeks that follow.
You can negotiate with your banker or mortgage lender to find out ways to consolidate loans. You can consider refinancing as an option, which will cut down on outward cash flow considerably.
Cutting down on waste is a big area. Nonproductive areas of waste such as avoidable telephone calls, piled up inventory, impractical
travel costs and extravagant dinners at restaurants can be cut off with immediate positive effect. Over-production and under production should also be seen as areas to be improved upon.
Non-performing assets such as under utilized real estate or office space, your equity in a home or office can be definitely convertible into cash without jeopardizing your ownership.
Tony Jacowski is a quality analyst for The MBA Journal. Aveta Solution's Six Sigma Online offers online six sigma training and certification classes for lean six sigma, black belts, green belts, and yellow belts.
