From the start of
a company ... "You know, the first year you're just trying to keep the
doors open. You're a one-man operation so you're kind of close to
everything...I always thought, gosh, more sales, you're in hog heaven."...
To managing growth...
"But
managing growth is almost as tough, if not tougher than, start-up. If you don't
have enough working capital, increased sales can really give you a problem
because of the (increased) receivables, because of the commitments (to
suppliers) coming due before the money comes in. "...cash flow is the
pervasive financial management issue for small business owners. It manifests
itself in ongoing capital, managing inventory, extending credit to customers
and managing accounts receivable.
Many small
businesses struggle just to make ends meet, especially during the start-up
period. A "hand-to-mouth" existence often continues beyond the first
year. Often, a little juggling is required:
"I looked at
the checkbook this morning and it didn't look real healthy, and I know Friday's
payday. I do have a little job we can start tomorrow, weather providing, and I
know I'll make enough off that job plus what I already have to make payroll
this week. Then I'll put off another job that I probably shouldn't, because
it's a job that I know I won't get paid for within thirty days."
Inventory is a
pivotal area for non-service business. "You maintain your profit margins
by turning your inventory quicker," explained a sporting goods
distributor.
The key to
success is maintaining good inventory, the appropriate amount and a good mix of
merchandise. "Don't keep any dead inventory around," continued the
same retailer. "If you've got bad merchandise, get rid of it. Keep a clean
inventory, a saleable inventory." The ideal thing is to be able to turn
your inventory more often.
Careful control
will also help. "To help cash flow," explained a different owner,
"I monitored my inventory as carefully as I could."
Another challenge
to successful financial management is extending credit to customers -- a
necessary part of many businesses. Customers often expect it. However, many
owners find it difficult to evaluate the credit risk of potential customers.
One suggested "looking at their financial statement, and then trying to
make a good decision." Another thought is a good idea to evaluate risk
based on the amount of potential business: "If a guy wants work done, yes,
I'm going to check him out."
Monitoring
accounts receivable to assure a steady cash flow is a universal concern of
small business owners. "Cash flow's the biggest problem," said one
owner. "If you can't keep track of your receivables and follow upon them,
you'll always have a cash flow problem.
Cash flow is also
an area where the experts are full of helpful advice: "Keep a close eye on
your receivables. Don't let them go too far out. I've got suppliers that give
me 30 days and on the 31st day, they'll call. Stay on top of who owes you money
and don't let it slide. You don't want to make more sales, necessarily; you
want to get paid for what you sell first."
"The basic
thing we did was to make sure that when a job was completed, the invoice was
out in the mail the next day. We also followed the job through to make sure
there weren't any problems. Using this two-step approach, our receivables
usually came within the terms of a normal 30-day period. This kept our cash
flow steady."
Many small
business owners use professional services to help manage the financial aspects
of their businesses. Accountants are the most frequently relied-upon advisors;
many businesses also tap the expertise of a lawyer, especially when
incorporating their business or purchasing an existing one.
http://www.marketmagic.com/blogengine1/post/2012/04/10/Challenge-No-4-Having-Adequate-Capital-.aspx
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