When you are out of cash, you are out of business is a law of business. Cash is an asset used to pay off liabilities. When you don’t have sufficient cash to pay those you owe money to, you will lose the ability to operate your business as your creditors step in to take what they are owed.
Protect your business from running out of cash by managing your cash to produce a profit. The BusinessCPR™ Management System is the most direct method for protecting your business from running out of cash.
Overview
Cash is the “lifeblood” of every business, no matter its size. Everything any business does over its existence depends on available and predictable cash flow. Making cash available to the business is the most critical concern for management. And every time a business loses control over its cash, it will quickly find itself in financial trouble.
What happens to a business that runs out of cash?
The first thing to do when your business is running out of cash is to stop all cash outflows. The number one rule of business survival is never to let cash outflows exceed cash inflows. The second thing you do is to project how much cash you see coming in this week. Knowing what your cash inflow will be drives how much cash outflow you can sustain each week.
When you are out of cash, you are out of business. As soon as you owe people more money than you bring in, you have violated the number one law of business—when you are out of cash, you are out of business. Eventually, those you owe money to will run you out of business. First, by cutting off the products and services they provide you to run your business, followed closely by aggressive collection tactics that push you to close your business.
Protect yourself from running your business out of cash by acting on the quantified leading and lagging metric “misses” that are most impacting your cash quality (heart rate) and cash velocity (pulse). Taking these actions ensures that your business is making the money it should, as confirmed by the weekly cash on hand (B-CPR Step 1) and the monthly change in profit levels (B-CPR Step 3).
