“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”
Entrepreneurs are by nature optimistic people. They are pretty comfortable with the unknown as long as the unknown feels or seems positive. In general, entrepreneurs are simply used to the roller coaster – some up’s and some down’s, but mostly up.
So, even though the roller coaster ride the economy has taken us on since 2008 has been more wild and bumpy than even the entrepreneurs are comfortable with, it has not dampened their spirits. Instead, it has taught them the necessity of getting back to fundamental financial management basics – especially when it comes to cash.
Strong practices in managing working capital, when done correctly, can put cash in your wallet – critically important during a time when credit is very tight.
Here are some things you can do today to improve your cash situation:
Everyone knows ”cash is king.” It always has been. But it’s wearing an even larger crown now, simply because you can’t depend on the bank to fund your shortfalls or future growth any longer.
Cash accumulates from strong management of profits and prudent management of receivables and payables. I’m not going to belabor this point, as I’ve written about it before, but suffice it to say: Now is the time to begin building cash reserves from profits.
Many advisors have also talked about cutting costs. And, yes, we need to do that, too. But before you cut half your staff, have you determined that your sales and marketing engine is working optimally? Do you have a pipeline for information and new business opportunities? Is your sales team held accountable for the volume of sales being brought in? Have you listened to your customers about their perception of the quality of your work? Would they recommend you to others?
Let’s face it, sales people are typically not the best at driving processes that help you manage your business successfully. We encourage all our clients and friends to create a pipeline reporting process that includes a distinct accounting of closeable opportunities, prospects and suspects. Additionally, create targets for your sales team and measure their performance against those targets.
Once you’re fairly comfortable you’ve fine-tuned your sales processes, turn to your projections.
Many of my clients are using a tool we’ve developed that ties three important components together: 1) The sales pipeline for the upcoming quarter; 2) revenue generated from current clients and; 3) the monthly “nut” for the business as a whole.
Using a tool like this helps entrepreneurs ascertain whether their pipeline will support the current level of staffing. Plus, it is forward-looking, allowing you to make cuts more readily if a downward pattern is seen.
On every roller coaster ride, there are opportunities. Even on this one.
If your business is doing well because you’ve done the right things and are in a good cash position despite the economy, why not consider buying out a competitor that’s not doing so well? Under the right circumstances, this could be a great time to acquire.
Let’s go out and see if we can find the opportunity in the difficulty. Let’s use our lemons to make lemonade!