The small business owner who hasn’t had cash flow trouble has never been an entrepreneur. It is a rite of passage to be broke. Admitting, I’ve stared bankruptcy in the eye. I guess because I didn’t file that makes me better than Dave Ramsey. In all reality, it doesn’t. Everyone’s circumstances are different, but all feelings of cash flow worry are nearly the same.
Below are 5 ways to find your cash.
These five ways are directly from the book “Game of Work” by author Charles Coonradt. My commentary is not from his book.
1. “Too much inventory and other nonliquid assets.”
I spoke with an franchisee owner who has consistent business net income of $0 (no typo)per year because he’s building up his inventory. It is not an exit plan, it very risky.
2. “ Overly high receivables”
Not long ago one of my distribution clients had a receivable problem. It wasn’t a receivable problem it was an invoice problem. Then again, it wasn’t an invoice problem. It was a system problem.
3. “Inadequate gross-profit percentages”
Compare your profit margins to your peers. Also, compare your net income to your peers. Your net income should be around 25% depending on your industry.
4. “Unwilling to implement cost cutting measures”
Don’t pretend you’re God. If you have to lay someone off, God will be their provider. Cut costs if you’re going to be a good steward of the company your running.
5. “Inappropriate management compensation for the owner”
You’re worried about your company’s cash flow but you took five weeks vacation and drive a $60K Mercedes. Really?
Thanks Charles for pointing out this cool formula. I haven’t found a flaw in the list as I advise other entrepreneurs. More importantly, when I’m in over my head with my own company cash flow challenges, this list is helpful and keeps me honest.