MONEY

How to Finally Fix Your Cash Flow-for Good

Tired of spending soul-sucking amounts of time eking out payments to vendors and employees? Break the cycle using these steps.
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Many business owners get caught in the Artisan Trap--a frustrating 'sell-do-sell-do' cycle in which the business never really escapes the 'Early Struggle' startup stage.

One of the most debilitating aspects of the Artisan Trap is the constant, nerve-end shredding angst caused by unpredictable (and usually negative) cash flow. Less 'flow' than a trickle, this seemingly-perennial shortage of cash causes us to spend soul-sucking amounts of time eking out payments to vendors and employees, rifling ruefully through every mail delivery for expected checks, and hitting 'refresh' constantly on our email inbox to (hopefully) find out that we clinched that one order which will clear next week's nut.

This situation needn't become a constant, debilitating energy drain. With one condition (see step 1 below), and a fair amount of intestinal fortitude (see everything else), you can break this cycle. After over 40 startups--most funded by very constrained personal cash (i.e. credit cards and cash found down the back of the sofa), here are my personal, hard-learned steps to overcoming negative cash flow:

1. Honestly appraise your product and your sales skills.
It may be a 'duh' moment, but the foundation of positive cash flow is the existence of an at least half-decent product or service, and reasonable sales skills. If you have both of those, there's no reason not to generate positive cash flow. If either one is missing, however, then you're screwed, and nothing that follows will help.

If you have any doubt about your product (or service) and/or your ability to sell them, ask other people you trust. Bribe them to be honest with you--ruthlessly honest--then listen hard. Fix whatever needs to be fixed (get a better product or service, or someone else to sell them), and move on to step two.

2. Spend a morning setting up a cash flow spreadsheet.
Grab a cash flow template online (there are plenty of them out there) and spend a morning customizing to match your income and expenditure streams.

3. Be ruthless and conservative in scheduling expenditures.
Here's where the intestinal fortitude starts: Don't lie to yourself.

Most business owners I meet who are caught in a never-ending cash crunch either don't manage to a detailed cash flow spreadsheet, or if they do, the numbers are squirrelly. Don't leave anything out, and don't pretend some expenses will either never materialize or will be less than you know they will be.

I know from experience how hard it is to be brutally honest when forecasting expenditures, but if you want to beat the Artisan Trap, there's no point doing otherwise.

4. Don't include any projected income.
Get ready to assume the fetal position, we're about to paint a vision of your worst nightmare: don't include any projected income in your cash flow. No estimates of what might come in, no potential sales from upcoming promotions, no 'revenue forecasted on past performance', none of that 'percentage likelihood of conversion' stuff. Just actual, agreed sales revenue, and nothing else.

I can't plead more strongly for you to do this. Why? Because staring down your actual cash flow is vitally important. Otherwise, you'll do what everyone does: you'll find barely defensible reasons to massage and inflate the projected income to the point where bingo!--a positive bottom line emerges, as if by magic, just at the point where the money would otherwise run out.

And guess what? Those imagined projections not only shore up your next few weeks or months on paper, they also dull the excruciating pain of having to look your real cash flow shortfall in the face, numbing you just enough to exhale for a day or two and focus on something else.

Which is precisely what you don't want to do.

5. Stare it down every day until it is fixed.
Now that you have a road map based on reality--all your expenses, realistically estimated, and only actual, real, sold income--it's your job to beat that sucker down every day until it's fixed. My recommendation is that you spend 15 minutes every morning updating your spreadsheet until you're at the point where it shows at least three months cash flow on hand. Then you can move to once a week--Friday morning is a good time.

For bonus points, save your updated spreadsheet as a pdf and use it as your screensaver--that way there's no ignoring it.

Discover additional tips for taking your business where you want it to be. Download a free chapter from the author's WSJ best-seller, "Predictable Success: Getting Your Organization On the Growth Track--and Keeping It There" to learn more about building a world-class culture that will rapidly accelerate the growth of your business.

Last updated: Jun 16, 2014




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