By Colleen Trask
Business Adviser for the North Coast Small Business Development Center - California
A few words of wisdom about cash flow in a down economy (Not that I'm particularly wise, but I've been privileged to learn from people who are): There is no cash but CASH. Inventory will not pay the payroll, not even if you work in a brewery.
The problem is that, once our business is up and running, we tend to make many of our cash-flow decisions on “autopilot.” Past sales and past expenses create certain expectations for us and, when we add these to our subconscious attitudes about money, we find we have created cash-flow “habits” -- decision-making patterns that we don't have to think about too much.
For most of us, cash-flow habits are both culturally and psychologically comfortable. Money tends to get hooked up to emotions: feeling safe or endangered; feeling empowered and effective or powerless and victimized; feeling successful or like a total failure; feeling confident and in control or depressed, anxious, and insecure. Because of all this emotional baggage, we often don't respond to money problems with the same rationality and creativity we might use to handle other issues. We get stressed and obsessed, and micro-manage our expenses to the point that we starve our business of the very things that could mean survival through the downturn. Or we feel overwhelmed and paralyzed, so we let our cash flow habits run on automatically, hoping that things will get better before we have to face the fact that the money is still going out, but it's not coming in.
We can ride either of these cash-flow ruts into depression and financial wreckage, or we can allow ourselves to be jolted out of them and into making proactive, conscious decisions about our cash.
The first cash-flow habit up for conscious inspection is the cash tracking system. Is it providing you with accurate information you can use to make good management decisions? Or is it just a way to collect information for tax purposes at year-end? A system is whatever you use to keep track of the cash coming in and cash going out, every week, every month. It can be on paper, on a laptop, or online, as long as the information is accurate and up-to-date. If you don't know how much is really coming in or going out and when, you can't make rational decisions about your cash. You can't solve problems before they become disasters. If your current system is not able to give you good information, get some help. Take an accounting class or take a deep breath and ask someone: Bankers, CPAs, professional bookkeepers or your local Small Business Development Center can help get you on the right track.
The second cash-flow habit up for inspection is the cash coming in. This means sales, and if your sales are way down, this might be depressing. However, a recession is an excellent time to shake the dust off of your marketing plan. What marketing plan? The one that can increase your sales and save your business, of course! It's not the written end-product that will help, but the process of writing that helps us to be conscious and proactive about our customers and our markets.
You don't have to tackle this alone either. There are marketing classes at College of the Redwoods and Humboldt State University, some excellent local marketing consultants, and the SBDC's free business advising services. And if you do want to go it alone, a Google search for “how to write a marketing plan” returns more than 5 million results.
The final cash-flow habit that needs inspecting is the cash going out. Sometimes this is the most difficult because we fear feeling deprived like a runway model on a starvation diet. But every expense has a purpose. If we can identify what that is, we can consciously consider whether that expense is helping our business or just a habit. If the expense helps our business (marketing and advertising for example), the trick is to think creatively about how we could accomplish the same purpose in a different (cheaper) way. Some expenses will be keepers and some won't. If you have employees, get their ideas and input. Shop around, and let them help! The phone bill, the insurance, the rent, the office supplies, the inventory, the advertising - all can be reviewed for money-saving possibilities, and even a little bit of savings in each area add up quickly.
Prioritize your payables: What really (REALLY) needs to get paid first? If you sell most of your product over the Internet, then your Internet provider would be the first bill that gets paid. Negotiate with your vendors. Talk to them - don't avoid the collection calls - set up a plan, take another deep breath and communicate, communicate, communicate.
In the meantime, set aside some time (even a few minutes!) each week to review your cash in and plan your cash out. A little planning goes a long way toward making your cash flow more manageable. If doing this at your office is stressful, try going to the beach. Find a sheltered spot, take your shoes off and dig your toes into the sand, smell the salt air, and let yourself be clear-headed and creative about whatever money situation is on that cash-in, cash-out report. If the beach doesn't work for you, try a forest or a garden or even a nice restaurant. Humboldt County has plenty of them and a cup of coffee doesn't cost that much.
You can be conscious about your cash-flow, and the challenge of this economy is one you can win with your heart and your mind, not just your money.
Colleen Trask teaches professional bookkeeping classes at College of the Redwoods and is a business adviser for the North Coast Small Business Development Center. She can be reached at trask@northcoastsbdc.org.
Business Adviser for the North Coast Small Business Development Center - California
A few words of wisdom about cash flow in a down economy (Not that I'm particularly wise, but I've been privileged to learn from people who are): There is no cash but CASH. Inventory will not pay the payroll, not even if you work in a brewery.
The problem is that, once our business is up and running, we tend to make many of our cash-flow decisions on “autopilot.” Past sales and past expenses create certain expectations for us and, when we add these to our subconscious attitudes about money, we find we have created cash-flow “habits” -- decision-making patterns that we don't have to think about too much.
For most of us, cash-flow habits are both culturally and psychologically comfortable. Money tends to get hooked up to emotions: feeling safe or endangered; feeling empowered and effective or powerless and victimized; feeling successful or like a total failure; feeling confident and in control or depressed, anxious, and insecure. Because of all this emotional baggage, we often don't respond to money problems with the same rationality and creativity we might use to handle other issues. We get stressed and obsessed, and micro-manage our expenses to the point that we starve our business of the very things that could mean survival through the downturn. Or we feel overwhelmed and paralyzed, so we let our cash flow habits run on automatically, hoping that things will get better before we have to face the fact that the money is still going out, but it's not coming in.
We can ride either of these cash-flow ruts into depression and financial wreckage, or we can allow ourselves to be jolted out of them and into making proactive, conscious decisions about our cash.
The first cash-flow habit up for conscious inspection is the cash tracking system. Is it providing you with accurate information you can use to make good management decisions? Or is it just a way to collect information for tax purposes at year-end? A system is whatever you use to keep track of the cash coming in and cash going out, every week, every month. It can be on paper, on a laptop, or online, as long as the information is accurate and up-to-date. If you don't know how much is really coming in or going out and when, you can't make rational decisions about your cash. You can't solve problems before they become disasters. If your current system is not able to give you good information, get some help. Take an accounting class or take a deep breath and ask someone: Bankers, CPAs, professional bookkeepers or your local Small Business Development Center can help get you on the right track.
The second cash-flow habit up for inspection is the cash coming in. This means sales, and if your sales are way down, this might be depressing. However, a recession is an excellent time to shake the dust off of your marketing plan. What marketing plan? The one that can increase your sales and save your business, of course! It's not the written end-product that will help, but the process of writing that helps us to be conscious and proactive about our customers and our markets.
You don't have to tackle this alone either. There are marketing classes at College of the Redwoods and Humboldt State University, some excellent local marketing consultants, and the SBDC's free business advising services. And if you do want to go it alone, a Google search for “how to write a marketing plan” returns more than 5 million results.
The final cash-flow habit that needs inspecting is the cash going out. Sometimes this is the most difficult because we fear feeling deprived like a runway model on a starvation diet. But every expense has a purpose. If we can identify what that is, we can consciously consider whether that expense is helping our business or just a habit. If the expense helps our business (marketing and advertising for example), the trick is to think creatively about how we could accomplish the same purpose in a different (cheaper) way. Some expenses will be keepers and some won't. If you have employees, get their ideas and input. Shop around, and let them help! The phone bill, the insurance, the rent, the office supplies, the inventory, the advertising - all can be reviewed for money-saving possibilities, and even a little bit of savings in each area add up quickly.
Prioritize your payables: What really (REALLY) needs to get paid first? If you sell most of your product over the Internet, then your Internet provider would be the first bill that gets paid. Negotiate with your vendors. Talk to them - don't avoid the collection calls - set up a plan, take another deep breath and communicate, communicate, communicate.
In the meantime, set aside some time (even a few minutes!) each week to review your cash in and plan your cash out. A little planning goes a long way toward making your cash flow more manageable. If doing this at your office is stressful, try going to the beach. Find a sheltered spot, take your shoes off and dig your toes into the sand, smell the salt air, and let yourself be clear-headed and creative about whatever money situation is on that cash-in, cash-out report. If the beach doesn't work for you, try a forest or a garden or even a nice restaurant. Humboldt County has plenty of them and a cup of coffee doesn't cost that much.
You can be conscious about your cash-flow, and the challenge of this economy is one you can win with your heart and your mind, not just your money.
Colleen Trask teaches professional bookkeeping classes at College of the Redwoods and is a business adviser for the North Coast Small Business Development Center. She can be reached at trask@northcoastsbdc.org.
