How cash flow can kill your business
October 23, 2017
By Jerry Bellune
Our consultant friend Ruth King sent five cash flow mistakes that can kill you.
1. Thinking you can lose money on a product and make it up on other product sales.
If 1,000 “give aways” cost you $10 each, that’s a $10,000 loss. Assuming an 8% net operating profit, you must generate $125,000 in revenue to make up for the loss.
2. Lacking proper cash handling procedures in place.
Proper procedures keep honest people honest and don’t tempt them. Procedures will not stop embezzlers. They will find a way around the procedures. However, focus on the 99% of those who are honest. Adopt these minimal procedures in place:
• Bookkeeper does not sign checks. Only owners or senior managers can
• Those who open the mail do not make bank deposits
• Have your bank send statements to your home.
3. Going to the Big Boys (or Girls) Toy Store when you have a great year. It’s tempting to want to reward yourself.
If your CPA tells you to spend cash to avoid taxes, be careful. You spend a lot of money in December and face a cash flow crunch the first of the year because you spent cash needed to carry you through the winter.
4. Not being your own banker.
As owner with a line of credit you’ve drawn down, what happens if your bank is sold or management changes? If they call the line and you can’t pay, they can seize all assets pledged to the line and you’re out of business.
Start a recurring revenue program and save at least 50% of the cash you receive from it in a savings account. Then your pleasant dreams won’t turn into nightmares wondering whether you have enough cash to make payroll.
5. Not putting 1% of every dollar earned in a savings account.
Even if you have a recurring revenue program or don’t put 50% of it away, you can still put 1% of every dollar in your savings account.
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Just call Rose at 803-359-7633.
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Copyright 2017, The Bellune Company Inc.
http://jerrybellune.net/how-cash-flow-can-kill-your-business/
