Cash, it is often said is KING! Here is a very useful checklist article written by Steve LeFever, Chairman of BRS-Seattle…
Business owners often get trapped because they don’t heed the messages their business sends and they don’t pay attention to basic principles.
The following checklist represents a clear set of danger signals – situations and issues – that have a clear and negative effect on cash flow. Take a few minutes under the harsh, cold light of reality to ask yourself how many of the following danger signals exist in your business and then evaluate carefully their implications:
- No physical inventory taken on a regular basis.
- Lots of unsold inventory sitting around.
- No monthly cash budget projection.
- Bank credit line not paid down to zero within the last year.
- Term loan payments were paid late one or more times within the year.
- Buying at trade shows without a purchasing plan.
- Short-term credit like credit lines used for long term assets such as rental equipment.
- Bank statements not reconciled every month.
- Supplier discounts rarely taken for early payment.
- Projected annual sales increase of over 25%.
- Balance sheet prepared only at the end of the year, and only used for tax purposes.
- No review of financial statements on a regular basis.
- High interest rates on bank loans.
- Increasing amount of credit supplied by credit cards.
- Bad debt expense increases every year.
- No Accounts Receivable report on weekly basis.
- High moving items are often out.
- Payroll checks have been written late one or more times this year.
- No systems in place to prevent internal fraud.
- Only communication with CPA is in April to discuss tax avoidance strategies.
- No handle on company cost structure or break even level.
- Showing profits but no cash.
- Business cycle contains sharp seasonal slumps or booms.
Perhaps the greatest danger of all: not having adequate records and/or financial skills to be able to answer all of these questions – or not having any questions to ask! Planning is the vital element, especially when we’re talking about cash flow. Danger signals are just that – signals. The longer you wait, the fewer options you will have. Now is the time to gain control and keep it. Get yourself ahead of the game, sleep better at night, and get in a much better position to weather whatever rough seas lie ahead.
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