“ A great product, a great team, a great reputation – none of it matters if your business has no cash! ”
4 out of every 5 businesses fail due to poor cash flow management.
It obviously helps to have a certain level of financial literacy but the more of a ‘finance role’ the business owner carves out for him or herself the less time he/she has to focus on growing the business. In other words, it is almost always a disadvantage to try to straddle the roles of business builder and finance director.
As an analogy, it is rare to find a world class sportsman who plays two separate sports at international level, not because they necessarily lack the talent but because they require a level of focus and commitment to doing one thing exceptionally well if they wish to perform to the highest standard. When business owners spread themselves too thinly across the key roles in their business, their impact across each function is weakened. The strongest businesses are underpinned by strong teams, where specialists rule their particular domain.
In so many cases cash flow problems can be avoided. Good businesses go under every day because the fundamentals are not in place. In fact, installing systems to help manage cash can be done very quickly and at very little expense. There are always risks to a business, but knowing that you have done everything you can to limit those risks will remove a huge burden off the shoulders of owners and managers.
If poor cash flow is the biggest threat to a business then why do so many businesses fail to control their cash? Well, the truth is, it requires specialist knowledge and can be complicated unless you have the right systems in place. Each business has a different cash flow cycle. Trading patterns within a business change from month to month depending on a range of factors and it is very easy to be caught out.
Failing to have a detailed and well crafted cash flow management plan is perhaps the single biggest risk a business owner can take.
As we have mentioned, cashflow is the lifeblood of a business. If the lifeblood is flowing the business has energy and is able to advance. Knowing that you have a robust plan in place, which allows you to operate within your means, and move away from a ‘feast and famine’ culture. This is usually a great relief to everyone within the business.
If poor cash flow management is the biggest cause of business failure it stands to reason that it should be the number one priority for every business owner.