Well, how could that be? If you have more bills to pay than money to pay them, isn’t that a cash flow problem?
My guess is that if you are a business owner who has ever faced that situation at any point in your career, you would most definitely have considered it a problem. In fact, you might have considered it an emergency or maybe even a crisis.
So why would I say there’s no such thing as a cash flow problem?
The reason is that while cash flow can be an issue, it is really a symptom of a much bigger problem. So, we really need to dig in to find the “root cause” so we can make sure that whatever is causing the situation doesn’t keep creating cash flow issues, and more importantly that the situation doesn’t get worse.
Think of a cash flow issue like you would think of pain in your arm. If it happens only once you might disregard it as something that just happened. You might take aspirin, put some ice on it or just let it rest. And that would be that. However, if the pain returns, becomes more frequent and more severe, you begin to realize you need to get it checked, get an x-ray, or even see a specialist. You need to find out what’s causing the pain.
Sometimes in business, we deal with a cash flow issue like that pain. In lieu of aspirin, we might put money in the business, tap a credit line or start using funds that are really for the next job that just signed a contract. And like the pain, if the cash flow issue comes back it tends to be more serious and more frequent, all the while you are depleting resources.
Soon, you might find that the issue has gone on too long. Resources have been exhausted that now need to be repaid. And, you might not have the time or money to fix the problem. Now, we have a mess.
Moral of the story:
Cash flow issues need to be addressed quickly, monitored accurately and resolved at the root of the problem!
Cash Flow Series
Look for future PowerTips in this series on Cash Flow; “Rapid Response to Cash Flow Issues” and “Improving Cash Flow by Improving Production”… coming soon!