Business owner peace of mind is directly proportionate to the amount of money they have in reserve to cover cash shortfalls.
The more you have to worry about whether enough cash will come in to meet payroll, the more likely you look like Business C.
Owners of Business A are less likely to trade four quarters on every dollar they sell. They earn profits that they set aside a portion of on each deposit to keep their cash reserves at a minimum of one month of cash needed. They set a cash reserve threshold that they won’t allow their business to drop below. This is how they avoid stressing over whether cash inflows will be greater than cash outflows this week.
No business owner can assume that positive cash flow and profitability will automatically happen for any business. Cash reserves are achieved through thoughtful profit planning and follow-through on key actions supported by accurate and timely reporting.
The “C” in BusinessCPR™ stands for Cash. Always protect your cash by building cash reserves through disciplined management of cash inflows so that they never exceed cash outflows. Your primary action from Step 1 of the BusinessCPR™ Management System is to increase your cash velocity by collecting on the monies owed to you for the work you have performed when the payment is due to you.
Anytime you fail to do BusinessCPR™ Step 1—Increase Your Operating Cash Flow Velocity, you are at increased risk of cash outflows exceeding cash inflows. Allowing this to happen means you will go out of business whenever there is insufficient cash available to operate your business.
Failure to utilize accurate reporting and make informed vital decisions will result in your business flatlining. If this happens, your business will need to be financially resuscitated, because you didn’t apply the principles of Business CPR™.