Six strategies to control cash flow

July 9, 2012 | By Neil Ducoff | 10 Comments

You can lead a company that delivers extraordinary customer service, generates impressive sales, and from all outward appearances appears wildly successful – but if your company is fighting cash flow, it’s functioning under extreme financial stress. Cash is the fuel of business. If the business is starved for cash and running on fumes, it is officially in survival mode and begging for relief. It is the toughest position for any leader to be in because it is often unclear and complicated which path to take to lead the company back to daylight and fiscal stability.

Fact: Cash is king – but you knew that. Cash gives a company power and options that cash-starved companies just don’t have. Cash is “sleep good at night money” because it creates a sense of security. Cash is truly precious. So, with all the upsides to building cash reserves, why do so many leaders focus on driving everything but cash flow?

Here are six strategies to control and build cash flow:

  1. Gotta have a cash-flow plan: You can analyze your Profit & Loss Statement and Balance Sheet all day long, but these reports – no matter how timely – are historical reports of what happened. Looking at these reports is like looking in the rear-view mirror to see where you’re going — when in reality all they can do is show what happened in the past. You need a cash-flow plan (a projection for revenues and budget for expenses) that looks forward month by month into the future. Without a cash-flow plan, you’re driving your company financially blind. If you don’t have a cash-flow plan, contact Strategies. We have a coaching program that builds your plan and teaches you how to use it.
  2. Gotta live your plan: All diets work. All fitness programs get you into shape. The secret is 100% commitment and discipline. If you don’t commit 100% to following and living your cash-flow plan, you’ve compromised your leadership and the financial wellbeing of your company. Most cash-flow problems are the result of the leader’s behavior and bad financial habits. Commit to changing your financial behavior and discover how quickly a company can emerge from the financial fiery pit of hell.
  3. Gotta share your numbers: I’ve been a long-time believer in sharing company numbers. Some leaders fear that sharing numbers will be detrimental to the company because employees may misuse or misinterpret what the numbers mean. Other leaders are against sharing numbers because there are certain “questionable” expenses they don’t want anyone to know about. (Perhaps that’s the reason the company is cash starved.) Fact: Sharing numbers is a learning process that takes time. You don’t just hand financials to everyone. You share numbers in stages supported by financial literacy training. People need to know where the numbers come from and what strategies move numbers in the right direction. Jack Stack, the originator of “open-book management” says, “With every pair of hands you get a free brain.” Get more brains focused on creating positive cash flow. No compromise.
  4. Gotta have financial scoreboards: Business is a game and you can’t play the business game without a scoreboard. Scoreboards tell the team if they’re winning or losing that month. On the 15th of the month, the scoreboard should say, “We’re at 50% – keep pushing.” Without a scoreboard, all the 15th of the month means is, “We’re halfway to we don’t know.” It’s not funny. It’s serious. Start scoreboarding and huddling every day.
  5. Gotta make tough decisions: The more critical your cash flow, the more difficult your financial decisions. In a worst-case scenario, owners may have to make adjustments to downsize their personal lifestyle. Don’t like that idea, then let any non-essential staff go. Don’t like that idea, then shut down the least profitable department in your company. Don’t like that idea, start cutting employee benefits. I think you’ve got the message.
  6. Gotta stop making excuses: Apple built a $100 billion cash reserve because its culture and leadership is disciplined to focus on what’s important and avoid distraction. Work on the gotta do’s and spend on the gotta haves. Avoid the nice to do’s and nice to haves. Entepreneurs are notorious for justifying just about anything. I know, I’m one of them. Stop making excuses or ignoring your cash-flow reality. No compromise.

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Categories: Financial Literacy , Monday Morning Wake-Up , No-Compromise Leadership , Profitability

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  1. If u don’t take a paycheck , don’t bring the receptionist in unless you’re busy, all employees are commission, minimal retail ( so not spending there) don’t have any benefits in place?

  2. What effect do gift certificate sales have on cash flow? it would seem those sales would improve cash flow however the fact that they are redeemed quickly could have the opposite effect. I have heard many theories what are your thoughts?

    1. Gift certificates are a beautiful thing. Yes, they are great for cash flow. Anytime customers pay in advance, it’s great for cash flow. The problem is in the “cash management” of GCs and that’s where most salons/spas get into trouble. It doesn’t matter how fast or slow GCs are redeemed, it is about having the “cash” available to cover costs at the time of redemption. This is overly simplistic, but think of this way; if the company is running at 10% net profit, then 90% of the GCs sale (cash flow) must be available at the point of redemption when the costs of delivering the service/product kick in. If the cash is gone, the company is going to be cash strapped to cover payroll, product cost, operating expenses incurred at the point of redemption.
      Salons and spas are notoriously bad at a cash-flow management. Few operate with a cash-flow plan (We just built one for L&G 🙂 or take the time to plan and manage cash. Like I said, cash paid in advance is a beautiful thing – but only if you manage it. Imagine the mess salons/spas would be in if they had to invoice clients and wait for their money? If they had receivables, they’d be forced to manage cash. GC money makes them cash-flow lazy.
      That’s my two cents.
      – Neil

  3. Hi Neil, I’ve been receiving your Monday Wake-up newsletter for a couple years now and never had one so timely as the cash flow newsletter I read this morning. Recently, because of poor cash flow, I made a decision to “fire” myself from my business and seek outside employment in order to support myself. Although being employed by another company has brought me personal income, it’s put a huge strain on the marketing, culture and leadership of my business-those best practices that I brought to the business. That said, the business has more cash in the bank than we’ve had in years. My partner is now begging to have me come back to “lead” the company again, but I’m afraid of both putting my personal finances at risk again while falling into the same cash flow trap that put me here to begin with. So, do I choose the cash flow or the creativity and leadership that has brought us to where we are today?

    1. Hi Brad,

      Your first duty is of course to your family. However, you have a partner who is probably in over his/her head and dealing with all the problems that caused the cash problems to begin with. Salons are complicated businesses to run and lead because of their labor-intensive nature. Clearly your company is begging for change more than just having its creative leader return. I don’t know how else to put this Brad than you, your partner and your company need coaching and training to get your company profitable. It doesn’t make sense for you to return to lead it the same way considering it was having cash-flow challenges before you left. Give me a call and lets discuss doing some work to find out what needs to change … and what you need to do to ensure that you and your partner can earn a decent paycheck.
      – Neil

  4. In business we certainly have our ups and downs! I started noticing a cash flow problem just recently. I answered the phone the other day and realized we were not able to take this appt in the next week. WHAt??? I then realized my employees have been taking too much time off. We have now put in our P & P a limit on days off. I never had to do that before but there comes a time when new problems arise. ( No Comprimise )

  5. Hi Debbie,
    This happens when you’re not looking far enough down range and planning hours for sale and cash flow. Next thing you know, you have to institute new policies in the middle of an avoidable crisis — and weather the storm until things stabilize.


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