Cash Flow Management: Here are the most painful mistakes entrepreneurs can make in their business.
Some of the most difficult times in my businesses were when I didn't have the proper cash flow management to make payroll. I've run several successful businesses that on more than one occasion each didn't have the money to make payroll. And, I've been a founder in more than several startups where we could not draw a paycheck because there just weren't enough funds in our bank account because we were UNDERCAPITALIZED!
Have you been there? If so, how have you managed through these tough times? Respond and let's get a dialogue going.
It is very stressful and emotional knowing that there isn't enough money to make payroll, pay myself, have to fire employees, and have difficult conversations with them. These days were probably harder because they required me to muster up enough confidence to handle it well. But, I digress. While people's issues are among the hardest to get right, not having cash to run your business is never fun.
Cash is the fuel in our engine that drives the growth of our businesses. Not having enough of it will kill you. Having too much of it can cause you to make foolish investments.
Here are the dumbest, most painful mistakes entrepreneurs can make in their business that have a direct effect on cash flow management. And, I've made them all!
1. Sticking with a Weak Business Model For Too Long
The modern-day vernacular to shifting strategy or directions here is to “pivot”. Simply put, companies that don't change their strategic direction when they should, can become fossils. Like aging dinosaurs, these companies die out, ergo they become extinct. If your business is struggling financially for too long without adequate sources of new cash, it will die. Unless you raise money like Jeff Bezos, CEO of Amazon, change your strategy. Change your business. Or die!
2. Ignoring Your Margins
It's amazing how many smaller businesses – especially those run by more creative types or those suffering from accountability deficit disorder – don't pay enough attention to their margins. I'm always amazed that they don't know them, don't watch them, don't set goals around them, etc. The fastest way to go out of business is to ignore margins. Do so at your own peril.
3. Ignoring Your Financial Metrics
Same story as above. But here we're talking about key ratios, like profitability, liquidity, activity, and turnover ratios. More specifically, your ratio of debt to net worth, current assets to current liabilities, days sales outstanding, etc. Or, more precisely developed for your business, it could be your profit per employee, profit per customer, or profit per website visitor. Every company should have a handful of financial metrics that are the most important ones to monitor. Every individual in a company should also have their own handful of metrics they're using to measure their success.
4. Being a Lone Ranger
Too many entrepreneurs go it alone. They started their business and built it successfully on their own. So, they figure they don't need help, advice, a mentor, or a coach to guide them from where they are to where they are going. These types of leaders typically are the smartest ones in their business and don't hire people smarter than them or challenge them. The fact is smarter entrepreneurs surround themselves with others who can teach them, mentor them, or coach them through the stage of business they are currently going through.
Which type of leader are you?
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The quickest way to double your cash is to fold it in half in your wallet. – Groucho Marx