To whet your appetite, here are a few strategies from our Virtual CFO team.
If you are lying awake at night wondering how you are going to meet tomorrow's payroll; if you are constantly being pestered by vendors wanting to know why you haven't paid; if you really, in the pit of your stomach, wonder if the business will survive -you are in a cash crisis.
First, let me congratulate you. Although a cash crisis will be both miserable and frustrating to you, properly managed it will become one of those great experiences that defines you as a veteran business leader.
Rather than just stew in your misery and agonize over your doubts, you need to take some definitive actions to solve your problems.
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You've been in denial and putting an optimistic spin on everything up until now. Now you need to come clean and simply tell the truth. Tell everyone, creditors, employees, bankers the truth.
HINT: The truth will hurt, and you will be tempted to make guesses and provide spin. DON'T DO IT! In a cash crisis your key asset will be your personal credibility, and you will only have credibility if you tell the same story (the truth) to everyone. This may mean you have to admit you don't know some key things (like when you can pay a bill or if you are going bankrupt). If you don't know, don't guess-tell them you don't know (the truth).
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Don't have a secretary ask who is calling. Just tell her to put the calls through to you. Don't make your payables clerk or accountant take these calls. As the CEO, you take them. Creditors will get a little rough and threatening and may even call you a few names. Just tell them the truth, and if you ever make a commitment, such as telling them you will call next week and give them an update, make sure to do exactly as you say.
HINT: Never, ever promise anyone that you will pay them. You may be promising something that you can't deliver. Only make promises on things you can do. You can promise to give them an update. You can promise to work 70 hour weeks to come up with a plan. Only make promises about things you can personally deliver.
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This is the one word you must learn to use in a cash crisis? If someone asks for a payment you can't make—just say no. If a collection agent demands a payment or he'll sue— just say no. If your assistant needs a new computer to do his job—just say no? You may not have many friends, but failing businesses have few friends; so learn now to say no, say it often, and say it with finality.
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This is obvious and simple, but often ignored. It is, however, absolutely crucial. You should know at all times exactly how much cash you have. If your accountant can't devise a system to give you that information, then replace him. In a crisis you absolutely must know this key information at any point in time.
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You should sign every check and initial every deposit so you know what is happening. These are actions you will usually delegate when you are not in a crisis. But if you are in a crisis, you should personally look at each transaction.
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Projections can help you bring sanity and control into the operation. If you are in a crisis, you should project by week your income and outgo for six to eight weeks ahead.
HINT: This is one area where a computer spreadsheet can become an essential management tool. Have your accountant create the spreadsheet and track actual results against projections until you become good at projecting the weekly cash flow six weeks out.
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Cash flow problems are always a symptom of something else that is wrong in your business. If you are in a cash crisis, you may have a number of things wrong. You need to start asking questions and testing answers until you have identified the real causes of your problems.
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Once you've identified causes, prepare a written list of actions you will take. This is your plan. Make sure each action is clearly defined and is assigned to a specific person.
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If you are in a crisis, you should be working your plan every day. It is best if you can devise a simple report that will measure progress on every one of your action items. You should know every day if the plan is being worked and if the results are what you expect.
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