Small Business Challenges : Cash Flow Crisis

Most small IT companies start off well with a few clients and a few good leads in the pipeline, however somewhere they start missing the plot and start faltering in their growth plans. With the small initial success, they become over confident and ambitious without putting the right systems in place.

Cash flow management is one of the key neglect areas, small companies often assume that their clients will pay in time and if not they will make up with new orders. They also start committing more expenses in the hope that business will be good all through the year.

In early days of business, income usually is always less and late and expenses come up early and more.
Entrepreneurs better be real about this rather than being over optimistic. This also applies to established companies starting new initiatives where they divert existing resources to chase new opportunities, and typically miss out on both the old and new opportunities if the cash flow situation is not handled correctly.

Many times I have observed that companies with good initial funding start investing a lot in fixed assets such as office space, computers, vehicles etc. , whereas it might be a good idea to pay a premium and buy the assets in installment, so that more funds are available in the business for marketing and hiring talented team. Many times companies have assets , but poor cash flow kills their business or dampens their growth.

Poor Cash flow can lead to one or all of the following situations

Create a negativity in the team as they will always be in fear whether they will get their salary in time or not.
There will be a tendency to compromise on the delivery to get payments from client sooner and hence will adversely effect the relationship with client
Attention shifts to crisis management, taking complain calls of suppliers for delayed payment etc.
Shake the confidence of the owners and divert them to create stop gap strategies which may not be cohesive with the long term strategy.

A good cash flow can be ensured by making sure the company is adequately financed in the first place.
Secondly, expenses should be kept variable as far as possible, and newer expenses should only be committed before the minimum threshold of reserve is reached. Collection Processes should be in process to automatically send reminders to clients who delay the payment and a panic alert should be notified to make sure that outgo never exceeds inflow.

Additionally, even if all else fails, keep a backup ready to help you in the crisis, so that business can continue and thrive to ensure good times come again.

Regards,
Ajay Sanghani
CEO, ITVidya.com
Cell : 098200 20753