How is Cash Flow Management Like the GPS of Your Car?

How you manage your company's cash flow can make or break your success, especially for small to mid-sized businesses. The inflow and outflow of cash can be difficult to balance. You have to work at achieving a positive cash flow. Success doesn't just happen. But, when cash flow management is not your best skill set, how do you make a change while keeping the business running smoothly?

Recently, we read a post by Brian Moran, of Small Business Edge, on precisely that. He compares cash flow management to the GPS on your car. We loved Brian's analogy, so we decided to ask him to elaborate.

In your recent LinkedIn blog post you referred to a business plan as a GPS plan. How can thinking of the business plan as a GPS plan help companies better manage business cash flow?

Brian: With a GPS plan, you have a specific destination or goal along with several options on achieving your goal. For example, in 2014 you want to generate $1 million in revenue, up from $700,000 in revenue that you did in 2013. Your GPS plan should tell you how to get from $700k to $1 million. How much will come from existing customers? How much new business will you need in order to hit your goal? How much business will you lose in 2014?

A good GPS plan will also tell you when you are going in the wrong direction. Going back to my example, if your company expected to renew $600k of the $700k in revenue from 2013, but you lose a $200k client in January, how will you make up the difference? You need to have that plan in place before you set out on your journey.

Where do most companies go wrong when it comes to managing business cash flow?

Brian: Cash flow is money coming into a company and money going out (Receivables and Payables). When a company starts to veer off course, it’s most often in the area of receivables. If you don’t stay on top of your A/R, then suddenly net 30 becomes net 60 or even net 90. It’s imperative to be the squeaky wheel with customers who become late payers. Often times, business owners will give into a customer’s demands, especially larger customers, on pushing back payment. However, these same business owners fail to negotiate new terms with the “payables” end of their business. In other words, the gap between when money comes in and when it goes out suddenly gets a lot wider. At some point, it must look like the Grand Canyon for business owners.

What recommendations do you give companies where managing financials is not a core competency?

Brian: Outsource the job. There is nothing worse, or more stressful for business owners, than trying to do something they hate or aren’t good at doing. If you view managing cash flow as a burden, then hire a bookkeeper or an accountant to do the job for you. If you go this route, make sure the company you hire is adept at collecting receivables, in an artful manner, from late-paying customers. You don’t want an outside company losing revenue for your company based on poor customer service.

Thanks Brian!

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Brian Moran Head ShotAbout Brian Moran:

As the Founder & CEO of Brian Moran & Associates, Brian is dedicated to helping entrepreneurs achieve their objectives & to run better businesses. Brian, along with a team of subject matter experts, leverages his 20+ years of experience in publishing magazines for business owners to assist entrepreneurs with everything from social media to accessing growth capital to expanding into the global marketplace.

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