It’s surprising how many small business owners don’t really understand cash flow. That’s why they fall behind in paying their bills.
Cash flow does not mean profits. You can have decent profits and lousy cash flow. Cash flow is the cycle of money flowing into and out of your company. You need to know how long it takes to collect money owed to you versus how much you need to pay your bills on time. Unless you have a large amount of your own working capital to take up the slack, customers who pay late force you to pay late.
To maintain a decent credit rating — and avoid a financial melt-down — it’s vital to manage your cash flow. Watch out for a shrinking bank balance, declining sales volume, and inventory build-up. Any or all of these are warning signs that money is going out faster than it’s coming in. You have to take steps to get them in balance.
There are many possibilities, depending upon your situation: increase sales, raise prices, improve collections, bill in installments, trim costs, decrease inventory, accept credit card and PayPal payments — or borrow money. Whatever you choose to do, don’t let cash flow get out of hand. Your first obligation as the boss is to keep the money flowing.
It happens often: Your computer system goes down, and your business comes to a halt. You have to get it fixed, pronto. You call the computer hardware supplier. He checks it out and tells you the computer is fine — it’s a software problem. You get hold of the guy who sold you your sophisticated software package, and he says its a hardware problem.
What to do? Well, somebody has to get you up and running, and it’s a frustrating time for you. The answer: Don’t put yourself in the way of this problem, in the first place. Have a single local supplier for hardware and software. No matter where the problem is, it’s their job to fix it.
The obvious answer: Have a good list and a good mail package. Direct response mail, as it’s usually played, is a numbers game, in which just a small response percentage is often a success — send the mailing, count the responses, then add up the sales from those responses. Direct mailers know that many on their list don’t bother opening or reading what’s in the mailing. But that’s acceptable, because some do, and that’s often enough. What a mailer doesn’t know is how many more sales would have been made if only everybody read the message.
You can’t force people to pay attention to your direct mail. But what you can do is follow up your mailing with a phone call. In my experience, direct mail with phone call follow-up produces the most qualified leads and the most sales from a given list. “Did you receive the mailing I sent you?” gets a dialog started, whether the prospect has read the mailing or not. Quickly recap the major sales points, or offer to re-send the mailing piece. Engage the prospect, and get him/her on track for a sale.
This is a labor-intensive strategy. It involves many time-consuming calls. It’s not practical for use with a mailing list numbering tens of thousands of names. But it can be very productive if you have a small, well-targeted list. Stagger the mailings so you can stagger your calls; don’t let too much time elapse between the mail and the call.
You’ll get the leads generated by the mailing alone, plus the additional leads generated by your phone calls.