BY FRED PARRISH
As the owner of a specialty pet business, you;re aiming to make a profit. ;owever, you might be surprised to learn that profits are not what keep
your company a;oat;cash is. ;ithout cash, profits are
meaningless. In fact, many businesses that appear prof;
itable on paper have ended up in bankruptcy because of
cash ;ow problems.
;or years, academic studies have found that cash ;ow
problems are one of the leading causes of
businesses going belly up. A ;.S. ;ank study
found that poor cash ;ow management is to
blame for as many as ;; percent of startup
and small business failures.
;our business cannot survive without
cash. If you do not manage your cash closely
enough, you will eventually be without the
necessary cash to meet your obligations.
;ow does it happen; In most cases, busi;
ness owners do not see it coming. ;ost small
business owners simply do not have a finan;
cial management background, which puts
them at risk of inadvertently making a fatal
decision at any moment.
;nfortunately, they might make a deci;
sion today that will not grow into a ma;or
problem until si; months or maybe even a
year or two down the road. ;y the time they
see it coming, it could be too late to do much
;ou might assume that a business is likely
to collapse when it is ;ust starting out, but a
significant percentage of businesses fail as a
result of a spike in success they simply can;t
keep up with. The most dangerous time in
a company;s life cycle is not when revenue
is stagnated, ;attened out or has started to
decline;it;s when revenue starts to ramp up
;ailure frequently happens when
; Can;t scale fast enough, usually because
they don;t have enough to spend on their
company to keep up with rapid growth as a
result of;you guessed it;cash ;ow.
; Invest too much in scaling, due to improp;
er or inadequate forecasting. ;erhaps you
overspend on scaling and the demand isn;t
as constant as you anticipated.
If you don;t manage your resources, you
will outstrip your cash faster than you can
earn it and put yourself out of business. ;ven
companies that are doing really well can get
themselves into trouble and never know it
until it;s too late.
If you run an established pet store or
boutique, predicting and managing your
cash ;ow can help you avoid this pitfall. ;n;
derstanding that cash is the lifeblood of your
business, coursing through everything you
do, is a start.
Cash ;ow is a cycle that involves every
aspect of the business and every level of the
organization. It begins when the first dollar
is spent to generate revenue and ends when
that revenue is once again converted to cash,
only to immediately begin the cycle again.
The cycle cannot be broken indefinitely with;
out serious negative consequences.
Cash management should be an obvious
priority when a company is not performing well (slowing
or declining revenue, unusual increases in e;penses, etc.).
;hen a company is in a fast growth mode, it is not quite
;ecause most companies will need to self;finance
growth opportunities, business owners should take great
care in making decisions regarding the amount and tim;
ing of the use of cash (investment). It is absolutely critical
to not run out of cash.
;ere are si; warning signs that indicate your company
may be headed for cash ;ow trouble;
; Cash discounts are being missed.
; ;endors are being stretched beyond normal payment
; ;ate fees are being incurred on lease payments or trade
; The age of your trade accounts is increasing and;or it is
getting more difficult to collect those accounts.
; ;ebt is increasing without a corresponding increase in
; ;eposits of payroll or other ta;es are being delayed be;
yond filing deadlines.
;hile this is not a comprehensive list, it can help
you to identify areas of your company;s operations that
need ad;ustment. The more frequently you see these
conditions occurring, the faster you should take pre;
The only sure way to avoid or at least manage through
a severe cash ;ow problem is to estimate the company;s
future performance;profit;and the cash ;ow generat;
ed and required. ;y knowing when a cash crunch might
develop, you can take the necessary steps beforehand to
;red ;arris; is t;e founder and ;;; of ;;e ;rofit ;;perts; a
;;; service t;at ;elps small business o;ners improve t;eir
profitabilit; and cas; flo;; ;e is also creator of ;;e ;rofit
;eacon; a ne; app t;at provides predictive anal;tics to ;elp
businesses ma;e smart and timel; decisions; ;arris; is also t;e
aut;or of ;;;e ;rofit Mentalit;.” ;or more information; visit
Pet Product News International July 2017
How to Avoid a Cash Flow Crisis
Predicting future problems is the key to avoiding bigger issues.
800-772-3726 / www.ruffdawg.com
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