Remember, there are only 3 reasons why you will find yourself in a cash flow crisis. To remind ourselves, there were:-
1. You’re not making enough money.
2. You are not getting your debtors to pay you and
3. You are spending too much money!
Last time we looked at the first step that should be taken and that was to get clarity on what you owe and what is owed to you and we did this by means of a debtors and creditors aging analysis.
This time we continue with the next step and that is cutting costs.
Entrepreneurs, like individuals, seldom even think about cutting costs. Most believe that if they can just increase the number of sales or alternatively if they can just get all the outstanding monies in then all will be well in their world.
The reality of course is that the more you make the more you spend. Your expenses will rise up to meet your income, so of course it is of the utmost importance that you regularly review your expenses to keep them in check
Remember, cash flow is exactly that – the flow of money into and out of the business, therefore both the entry (input) flow and the exit (output) flow must be monitored and measured on a continual basis. Consistency is the key here.
Once you have all your expenses under control and have cut what you can and allocated that ‘spending’ to some of your outstanding debts, it is time again to look at what is outstanding and see how best to deal with these. This is also a good time to put a budget into place in order to control spending going forward and this will help you to ensure that your spending does not get the better of you again in the future.
There are several ways to now deal with the outstanding money that you owe to your creditors. This will however, depend on the supplier and how ‘flexible’ they can be or are willing to be.
What happens next will probably be one of the hardest things that you will have to do and that is a) full transparency and b) absolute honesty.
You will need to contact every single one of your creditors and meet with them. Face to face is best. When you meet with them you will have to explain ‘how’ you are going to sort your debt to them out.
Be realistic, don’t promise what you cannot deliver! This is the time to err on the side of caution. Rather under promise and over deliver than the other way around.
For the expenses that are paid by debit order, try and stagger them through- out the month so that they do not all fall due on the same day, or even better yet, stop them altogether and pay as and when your funds become available, but make sure that you pay the minimum that you have agreed to pay, on or before the date that you have agreed to pay it.
This is one time that you have to be absolutely honourable, not only in your intent, but also in your execution.
Next time we will look a bit more in-depth at how to take back control of your “in crisis” cash flow.