Who do you think is better at managing money, the single mother or the billionaire? Okay, well let me
put it another way, if suddenly there was an economic downturn and the billionaire lost his/her money
would he/she be able to survive? My bet is on the single mother. Why? Well, having limited
resources helps you to create a mindset that allows you to make the best use of the money that you have;
because at the end of the day, all roads lead to your bank account.
Cash rules.
You need cash to stay in business. You need to pay your staff, your suppliers, your
investors, your financiers, and to reinvest in the company. Given its importance to your survival, it goes
without saying that you should be monitoring your cash daily. You should know when you are most likely to have a
cash shortage or excess. Needless to say, ongoing cash shortages are not and never will be sustainable. So,
what do you do? Monitor your cash flow.
Control your spending.
You need to understand that every time you place an order, you are spending your money. In a small company, controlling the expenditure should be easy to do as the
spending authority rests in the hands of the business owner. Also, it is important, to not only have a budget, but to stick to it. Now, in a large company, controlling spending is difficult to accomplish, but not impossible, as the spending authority is spread
among several managers. So, what do you do? You set ceilings and expect your managers to honour them.
In addition, you prepare a budget and stick to it. Last but not least, you hold your managers,
accountable. If you are going to be successful at managing your cash, you cannot tolerate any
overages.
Emergencies can be created.
Things happen but not everything is an emergency that
requires you to stray from the budget. As the business owner you are intimately involved in all the
affairs of the business and can determine when a situation qualifies to be considered an emergency that
warrants stepping outside of the budget. When such a situation presents itself, carefully weigh the
benefits against the cost.
For a large company where the spending authority is spread among several managers, emergencies can
be numerous, and it is quite possible for your managers to “create” an emergency because they want to
fund for one of their pet projects. So, what do you do? First, establish a budget and stick to it and make
it clear that there will be consequences for overages. You can take it one step further and reward your
managers for staying within the budget. At the end of the day, the CEO should determine whether the situation
qualifies as an emergency not the department head and as mentioned earlier the benefits and costs
should be assessed.
Monitor.
Monitor your cash daily or weekly, at a minimum. As a business owner you need to know
whether you are generating cash surpluses or deficits. Once you know where you stand, act accordingly,
as you cannot live in the land of deficits.
Forecast.
I know you don’t have a crystal ball but what you do have, is better than that. You have
actual information that you can use to forecast your future cash inflows and outflows. So use it and prepare
a forecast for a month, a quarter, six months etc. In this way, you can see the pitfalls and do something
about it ahead of time.
Act.
Do something! This cannot be said enough. It is taking action that will make the difference. If you have money
owed to you, collect it. If you can reduce your costs, do so. If you can offer more services, try it. If you
can attract more customers, don’t hesitate. Whatever you can do to enhance your cash flow, as the
Nike saying goes, just do it.
To learn more, take our online elearning program on Strengthening Cashflow, https://learningmovesmountains.com/small-business-financial-management-program/.