Hidden Costs of Running a Cash Poor Business

Run your business in a cash-starved state and certain costs are likely to crop up: high interest credit card debt, late fees, overdraft charges.

Other costs of running cash poor are hidden, like staff time. I’ve seen bookkeepers spend 20% of their time juggling cash. That’s a thousand dollars per month spent on survival instead of creativity, innovation and growth.

Bookkeepers aren’t the only ones affected. The cash crisis modus operandi tends to ripple through a small business, constraining people in ways large and small in a negative feedback loop.

Better to build some cash reserves and open the door to opportunity:

• Have some mad money available for small experimental projects
• Take advantage of your vendors’ early payment discounts to boost profit margins by even a half percent (which is BIG, by the way)
• Pay down high interest debt and recirculate the interest expense savings into more productive uses
• Swoop down on one-time bargains — maybe a competitor goes out of business and you buy their merchandise on the cheap.

Even a little cash can go a long way toward turning a negative feedback loop into a positive one. Small gains build on each other.

And with bigger dollars you can turbo charge your income tax strategy. Max out a 401K with a profit sharing plan and save more than $10,000 per year in taxes. Or accelerate expenses at year-end and defer income tax on your company’s profits for a full year. Keep the money, put it to use, don’t give it to the IRS prematurely.

How does your company measure up? Here’s a litmus test: if you have to forecast cash on a daily or weekly basis then you probably have a serious cash flow problem that needs fixing.

If it’s a short-term crunch that’s one thing.

But usually it’s a long-term chronic condition because a business owner hasn’t committed to running a more abundant company. Choices made last year affect today’s cash flow. Choices made today will affect next year’s cash flow.

There’s lots of good advice how to improve your company’s cash flow in my blog and all across the internet, but the first thing you need to do is overcome the mental obstacle. Resolve any doubts in your mind, because you can turn your company around.

Cash flow positive companies don’t just happen; they are designed that way by thousands of decisions, day by day. The beautiful thing is that you can start today, right now!

P.S. Running a business on cash vapor can be a legitimate and lucrative financial strategy. Your Return on Assets (ROA) and Return on Equity (ROE) goes way up. But I don’t recommend it for most entrepreneurs. It takes a lot of expertise and financial engineering. It’s too risky a strategy for most companies.