Looking For a Silver Bullet Quick Fix For Cash Flow Problems? Here's a More Realistic Approach

Unraveling cash flow problems for small businesses can be a difficult task says cash flow expert, Caroline Jordan, author of Stop the Cash Flow Roller Coaster, I Want to Get Off! She should know. She has helped scores of small businesses with financial rescue missions and cash flow makeovers. Jordan says, "Business owners often tell me that the problems in their businesses are caused by poor cash flow. The real truth is that poor cash flow is caused by problems in the business. Often, business owners look for the quick fix, the silver bullet that will make the problem disappear. Cash flow is more complicated than that."

Jordan recommends taking a hard look at all aspects of a business before embarking on a cash flow recovery plan. "Cash flow improvement starts with business fundamentals like credit and collections policies, accounts payable management, and marketing. From there, a diagnosis of where the problems are will help to develop a plan to improve all areas that are having a negative impact on cash flow."

Instead of looking for one magic pill answer, Jordan suggests attacking the problem on a number of fronts. "Cash flow problems are caused by a number of interrelated business issues. If you don't have a marketing plan, sales will suffer. If you don't have good credit granting practices, you'll end up with slow paying customers. If you don't use vendor credit wisely, you'll run out of needed goods for production. The problems are usually systemic and without a systemic approach to solving the problems, the business will continue to struggle."

A systemic approach might include the following specific steps for a business with cash flow problems:

1. Raise prices by focusing on the needs of your best customers and adding value to what you offer those customers.

2. Reduce three unnecessary expenses-water cooler, subscriptions you don't read, products you don't need or don't need right now.

3. Develop a highly focused marketing message aimed at attracting and retaining your best customers (this also works to repel the customers you don't want.)

4. Develop a realistic budget and cash flow forecast.

The good news for small businesses, says Jordan, is that a poor economy serves as a wake up call to the critical importance of cash flow management. By learning to understand how cash flow works, a business owner can build a stronger business, better able to withstand the rigors of harsh economic realities.