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A great product, a great team, a great reputation - none of it matters if your business has no cash.

Cash Flow

Cash Flow

The fact is that 4 out of 5 companies fail due to poor cash flow management. Hence the logical conclusion would be that the majority of entrepreneurs have a clearly defined strategy on how to avoid cash flow problems, i.e. that they have a plan to improve the cash flow.

However, this is not the case. The creative skills necessary to set up a business are in most cases different from the skills required to manage the business, particularly when it comes to finances. A great number of entrepreneurs invest a greater or lesser degree of effort into understanding finances and accounting, which contributes to a wider range of financial 'literacy' that is most certainly desirable. However, the greater the energy invested into understanding and managing the mentioned area, the less time and concentration there is left to tackle the real responsibilities of a entrepreneur – and those are managing and developing the company's business operations.

In other words, attempting to simultaneously perform the role of a finance director on the one hand, and the role of an entrepreneur on the other, has more downsides than upsides. The reason for such a conclusion is not the lack of talent in performing both functions, but the level of focus and devotion necessary to perform one of the two things exceptionally well and at high standards.

Cash flow management is not an easy task. Due to the fact that every business has its own cycles and behavioral patterns, expert knowledge is necessary for the quality balancing of needs and abilities. Unfortunately, due to frequent inadequate decisions on the part of the owners, entrepreneurs, and management who are not able to predict the short-term and long-term consequences of their decision, the cash flow is oftentimes jeopardized. In that case, it is advisable to have an expert at hand so as to distinguish wishes from reality and back them with arguments.

When cash flow problems occur, the most common reaction of an entrepreneur is to ignore them, hoping and wishing that the problems will vanish. This rarely happens. The reaction that follows is a panic-stricken ’mending of the gaps’. Cash flow management should not come down to short-term solving of potential deficiencies, but should rather become an integral part of the business itself. This is achieved through systematic, focused activities linked to:

  • A comprehensive review of financial inflows and outflows over time,

  • Detection of weaknesses and threats connected to cash flow,

  • Alignment of sales strategies and investments with sustainable cash flow,

  • Establishment of internal and external communication so that the participants, while creating cash flow, may be in possession of complete information,

  • Identification of hidden or non-operational assets which can be monetized

  • Support from financial institutions.

Preparing a comprehensive plan of cash flow does not require a great amount of time. It must contain an overview of inflows and outflows, needs and possibilities, in order to provide the management structure with the opportunity to understand the sustainability of certain decisions, including the present and the future of the company. A well-prepared cash flow gives clarity and stability to the business and reduces stress among employees, and therefore great attention ought to be devoted to its planning. Cash flow management is not simple. Due to the fact that every business has its own cycle and behavioral patterns, expert knowledge is necessary for the quality balancing of needs and abilities. 

Cash flow is the lifeblood of a business. If the lifeblood is flowing, the business has energy and may advance.