(Time to read this Blog article is about 45 seconds)
One of the biggest challenges in many businesses is the failure to manage cash flow effectively. When you run out of cash, you run out of options. Even big banks and entire nations fall into this trap.
In Greece, 46% of bank loans are currently ‘non-performing’, meaning that scheduled payments have been missed for 90 days or more. In the USA, just 1.3% of loans are non-performing and in Canada the number is just only 0.5%. Clearly, our banks are better at cash management by not lending money to people or businesses that can’t repay.
Many countries spend more money than they take in. The world’s biggest offenders are Japan, Greece and Lebanon. But countries can just print more money to pay the bills. Try that in your business and you’ll end up in jail.
In business, effective cash management simply means taking in more money than you spend or, in seasonal or cyclical industries, managing the timing of the cash flows in and out. Insufficient sales, too much inventory, high overheads and operating expenses or failure to collect accounts receivable on a timely basis are all major causes of cash flow problems.
In seasonal and/or cyclical industries like agriculture, tourism, mining, construction and building materials, cash management is doubly important and doubly difficult. They need to build up cash balances during good times to get them through the lean times. As simple as that sounds, many fail to do it. I’ve seen many businesses fold because they couldn’t get a handle on cash management.
Cash management isn’t as sexy or as much fun as marketing, product development or other aspects of your business…but it’s absolutely essential to your survival and success. So, what will you do to get a better handle on it? What systems might be needed to better track it and what disciplines and decisions are needed to control it?