I recently read an article by Bob Coleman in The Coleman Report that claimed that more small businesses fail due to lack of cash flow than for lack of profit. When business owners concentrate on increasing sales to achieve profitability and growth, but forget about regular cash flow, they may get into trouble. Converting sales into cash takes more time, especially in these times when customers stretch out payments as long as possible to avoid their own cash-flow problems.
I recently read an article by Bob Coleman in The Coleman Report that claimed that more small businesses fail due to lack of cash flow than for lack of profit. When business owners concentrate on increasing sales to achieve profitability and growth, but forget about regular cash flow, they may get into trouble. Converting sales into cash takes more time, especially in these times when customers stretch out payments as long as possible to avoid their own cash-flow problems. This results in problems when cash may sit in inventories and late payments rather than paying employees, infrastructure, and upgrades. Thus the need for a little debt, to make certain that there’s enough liquidity on hand to take care of irregularities.
The United States, the largest national GDP in the world, has the same sort of problems. Recently, President Obama asked Congress to give him the power to streamline and merge agencies that overlap. That sounds sensible, right? According to the president, there are six departments and agencies focused on trade. “In this case, six is not better than one,” Obama said back in January. “We could consolidate them all into one department with one Website, one phone number, one mission—helping American businesses succeed.” And, in the process, a leaner federal government could certainly save a few dollars to help with the bottom line.
Have you practiced any belt-tightening recently? If you have survived this recessionary period starting in 2008, then you must be an expert at it by now. I asked some of the companies I know about what they did, what secrets they cared to share, so that I could piece together a future article on cost-control methods. Michael McCall, president of Heinrich Ceramic Decal Inc., Worcester, MA, had some really good ideas. His company screen prints waterslide and heat-release transfers for glass and ceramics. These are some of things his company did in the past year to control the cost of operating his printing company:
• Reduce the number of similar raw materials that are kept in stock
• Cross train production staff to be able to handle spikes in volume from large-quantity orders that have short lead times, a practice that keeps the staff lean and reduces overtime costs
• Use production-scheduling software to model workflows and respond to daily priority adjustments
• Convert a large number of screens from capillary film to direct emulsion using a precision coating machine
He didn’t buy any new or used equipment in 2011. And some attempts at cost savings just didn’t work, which also supplies some helpful information for the future. For instance, when he attempted to replace some of the screen mesh and emulsions and substitute with a less expensive alternative, it didn’t work out so well. Why? Because the work he does has tight tolerances for edge definition and exact ink-film thicknesses. Sometimes, ideas just don’t work out.
On the other hand, McCall’s best ideas will result in future cost savings, though they might not be immediately evident. For example, Heinrich Ceramic Decal focused sales efforts on specific markets that require their type of specialty expertise and avoided commodity markets. They continued to invest in technology to manage information from sales and project inception through the production process on the shop floor. Also, they continued with ongoing efforts to conserve energy.
Might I suggest that you look at your own organization to see how well the cash flow and debt situation are handled? Do you have redundancies? Is there too much stock on hand? Have you stretched the limits of your staff enough to keep them interested, challenged, but not over stressed? Are you going in the right direction as far as belt tightening so that you can grow the company and still cut down on overhead?