Franchisees Need to Fuel Their Businesses
Buckley said that business owners are many times faced with the dilemma of being controlled by cash. Owners often come up with excuses such as, “I’d like to do such and such but I don’t have the cash.”
He suggested that business owners are often stuck digging out from under a pile of bills that sometimes cripple a business or force it to close down. “Without cash you are always in a crisis mode - keeping vendors from cutting you off or being unable to make your payroll.”
Unfortunately, many owners like to have everything under their control - including cash management - and often wind up managing cash “by the seat of their pants,” according to Buckley. “People who manage by the seat of their pants may not know they have a negative cash flow, either. That means they have more going out than coming in.”
He recommends that business owners find someone to manage the cash for them, and listed some ideas from a hypothetical “Cash Management 101” course.
- Keep a cash reserve.
- Keep your banker informed.
- Tell your customers they need to pay you. (C.O.D. or simply telling them you expect to be paid.)
- Tell your vendors when you will pay them. (Keep them informed, most people will be understanding.)
- Keep track of your cash flow.
- Project future cash flow.
- Don’t spend money that you don’t have.
Buckley said it is important to maintain a cash flow statement, which usually accompanies a profit and loss statement. This is a summary of cash inflows and outflows for a certain period of time.
“I also recommend a cash flow analysis,” he said. “You can use an analysis of your past to predict your future. This is one of the most critical tools for business owners.” A cash flow analysis will help with cash flow forecasting but it can only come after a business owner has accurate cash flow projections. Unfortunately, according to Buckley, it takes a while for some business owners to get to that point. “Most small businesses start out undercapitalized and remain that way for a long time,” he said.
Forecasting includes under-standing what drives cash flow in a business. Buckley noted that buying more capital assets to drive business can also improve cash flow. He also recommended planning for funding before needing it. “The toughest time to borrow money is when you actually need it,” he said.
Buckley asked AireServ franchisees two critical questions: “Do you know what your cash balance is now? It should be current and should be checked every day, week, or month, depending on your cushion. Do you know what your cash balance will be six months from now?”
He wrapped up his speech as he started it, with the following statement, “remember the rule: never, ever, ever, ever run out of cash.”
Publication date: 12/04/2006