There is a common misunderstanding about cash flow and what its role is within your business. Cash flow is often described as the lifeblood of any business. You can be profitable on paper but cash poor. It is important to know the difference between cash flow and profit and how to keep money going into the bank. To better understand cash flow you need to understand the problems associated with it.
Here are 3 common problems with cash flow you need to keep in mind when you manage your cash flow.
• Profitability does not mean cash flow. This is the most common problem restoration business owners run into when managing their cash flow. They believe that if the paper shows they are profitable that means they have cash. However, this is not always the case. You may be showing a positive balance, but if you are not easily able to get to that profit in the form of cash then it is not very helpful to you at the moment. You may have cash, but if it is locked up in accounts receivable or in assets then it cannot go to paying payroll, or covering warehouse expenses, etc. Therefore, having easy access to cash is important, but often a problem.
• Finding the obstacles. Another problem is finding your cash draining obstacles. These obstacles are those that are draining and slowing your cash flow. For example, you may offer services that just aren’t selling. This will diminish your cash flow. You have to determine what services are selling and focus your efforts on those and stop pumping money into a service that is not bringing you a return.
• You will need to cut costs. Often times this is the hardest problem to overcome because you have to make tough decisions. You may need to ditch the big warehouse and downsize to a smaller office. Outsourcing may also be a decision you need to make. You can save money outsourcing positions that you cannot justify with a return. Therefore, the positions that aren’t making you money can be outsourced to get that cash flow back into your pocket.
Cash flow, though important, comes with its own set of problems. These problems, although they may be frustrating, can be overcome. Truly understanding cash flow is the first step in overcoming the problems. Also identifying the obstacles that are preventing your cash flow from being steady will help you determine what costs you need to cut. All in all, when you overcome these problems you will be on your way to unlocking your cash flow and growing your restoration business.
Written by Gokul Padmanabhan
Gokul Padmanabhan has devoted the past 15 years to buying and selling businesses, much of that in the restoration industry. His partnership with Restoration Brokers of America strengthens his hands-on expertise with a national presence and infrastructure that is second to none.
