The "Cash Crisis"

The experience of counselors is that all too often the business owner feels that his or her needs are financial when they are actually managerial. In such firms, money can ease the pressure temporarily, but further indebtedness only intensifies the basic problem. Money alone cannot provide the sound management needed to continue the business.

Counselors to business owners are continually faced with the "cash crisis" problem. This cash deficiency results from the lack of planning.

A mistake many purchasers of a business make is that they buy something beyond their means. They take possession of a business of some value but without one important asset - sufficient operating cash. When a buyer does not put aside working capital (cash), he or she cannot pay current bills and the rest of the story is easy to foretell.

It is the "cash crisis."

Sound management consists of arranging matters so that current liabilities are provided for as they become due and hence paid promptly. When such coordination is not present, the result is a constant "cash crisis."

Without a floating supply of cash, a business will experience occasional convulsions which distort, confuse, embarrass, and alarm everyone concerned with the enterprise. The owner-manager's employees and suppliers are the first to sense the nervousness of the situation. When they do, they begin to consider their futures in the light of these emergencies.

Lack of cash can drive a firm into bankruptcy even though its products are first rate and its operations are profitable.

Avoid A "Cash Crisis"

To avoid a "cash crisis" you should determine how much cash your firm needs for its normal operations. Then plan your finances to achieve the goal. The amount of cash which a business will need differs because all businesses are not alike. Usually, for comfort, five to ten percent of a firm's working capital should be in cash.

In a sense, financial planning is what you anticipate your financial statements will show on a specific date and how you intend to get there. A cash forecast will indicate whether or not your plan of operation is feasible. A budget will indicate the availability of cash at all points of operations.

Cash Budgeting

When the subject of budgeting comes up, some owner-managers say, "That's for the big fellow. I know what my volume is and my bank account tells me how much money I have." These owners fail to realize that budgeting can help to eliminate errors of judgment made in haste or made on assumptions rather than facts.

The first thing you must know in budgeting is what your anticipated expenses are going to be for the period being budgeted. Then how much in sales must be generated to pay these expenses? What will be left? You must try to determine the high and low points in your operations in order to provide the adequate amount of cash. A sales analysis of previous periods will indicate when the high and low points occur.

This forecasting helps you to plan for financing the purchase of inventory and for carrying your accounts receivable. Controlling inventory and accounts receivable can help to take the strain off of your working capital.

Uses Of A Cash Budget

The cash budget is the most effective tool for planning the cash requirements and resources of your business. With it you plan your financial operations - the cash you expect to take in and pay out. Your goal in budgeting is to maintain a satisfactory cash position for any contingency. When used to project the cash flow of the business, the cash budget will:

Provide efficient use of cash by timing cash disbursements to coincide with cash receipts. These actions may reduce the need for borrowing temporary additional working capital.

Point up cash deficiency periods so that predetermined borrowing requirements may be established and actual amounts determined to reduce excessive indebtedness.

Determine periods for repayment of borrowings.

establish the practicability of taking trade discounts or not taking them.

Determine periods of surplus cash for investment or purchase of inventory and equipment.

Indicate the adequacy or need for additional permanent working capital in the business.

Be Factual

The important thing to keep in mind in making a cash budget is the word "cash." Be as factual as you can. Try not to over-estimate sales or under-estimate expenses. Your sales forecast must be as accurate as possible because it is the basis for figuring your cash and expenses.

Use your experience to determine your cash sales. In seasonal businesses and those which have high-ticket merchandise, the percent of sales that are for cash will vary from month to month if they apply to your business.

A format such as that shown in the example below can help you to be factual. This example of a cash budget forecast uses two columns for each month. The second column allows you to insert the actual figures as they occur and helps in correcting mistakes for future forecasts.

Evaluate your budget periodically with real operations figures. With powerful records you can do this. Afterward, where
discrepancies appear you can take corrective actions before it is too late. The right decisions for the right corrective action
will depend upon your understanding of management techniques in buying, pricing, selling, selecting and training personnel, and
tackling other management issues.

You probably are thinking you can hire a bookkeeper or an Accountant to handle the record keeping for you. Yes, you can. But
remember two very important details:

1. Provide the accountant with accurate input. Should You Purchase something And don't record the amount in your business
checkbook, the accountant can't enter it. If you sell something for cash and do not record it, then the accountant will not know
about it. The documents the accountant prepares will be no better than the info that you provide.

2. Use the documents to make decisions. If you went to a doctor And he told you you were ill and needed certain medication to get
well, you'd follow his advice. Should you pay an accountant and he informs you that your earnings are down this year, don't hide
your head in the sand and pretend that the problem will go off. It won't.

Business Management Roll in Personnel Selection. If your business Will be big enough to require external assistance, a significant
responsibility will be the choice and coaching of one or more workers. You may begin with relatives or business partners to assist
you. But if the business grows - as you hope it will - the time will come when you have to select and train personnel.

Careful selection of employees is vital. To Pick the right Employees decide beforehand what you want each one to do.

Then search for applicants to fulfill these particular needs. In a small Business you will need flexible employees who can shift
from task to task as needed. Include this in the description of all those tasks you would like to fill. At precisely the same
time, look ahead and organize your hiring to guarantee an organization of individuals capable of accomplishing every crucial
function. At a retail store, a salesperson might likewise do stock-keeping or accounting at the start, but as the business grows
you'll need sales people, stock-keepers and bookkeepers.

Once the job descriptions are composed, line up applicants whom To make a choice. Do not be swayed by customers who might suggest
relatives. In the event the candidate does not succeed, you might drop a client in addition to an employee. Some sources of
potential new employees are:

1. Recommendations by friends, business acquaintances. 2. Employment agencies. 3. Placement bureaus of high schools, business
schools, and schools. 4. Trade and industrial associations. 5. Help-wanted advertisements in local newspapers.

Your next job is to display want ad answers or program Forms sent by employment agencies. Some applicants will be eliminated sight
unseen. For every one of those others, the application form or letter will serve as a foundation for the interview that ought to
be conducted in private. Put the applicant at ease by describing your company in general and the occupation particularly. As soon
as you've completed this, invite the applicant to speak. Picking the right person is very important. Consult your questions
carefully to learn everything about the applicant that's pertinent to the job.

References are a must, and should be checked prior to making a final decision. Check through an individual visit or a phone call
directly to the applicant's immediate previous manager, whenever possible. Verify that the information given you is correct.
Consider, with conclusion, any negative remarks you hear and what isn't said.

Checking references may bring to light important information Which may save you money and potential annoyance.

Personnel Training. A well-selected employee is only a potential Asset to your business. Whether or not he or she becomes a true
asset depends on your training. Remember:

To allow adequate time for instruction. Not to anticipate too much from The trainee in too short a time. To allow the employee
learn by performing under actual working conditions, with close oversight. To follow along with your training.

Check the worker's operation after he or she has been at work For a moment. Re-explain key points and short cuts; bring the
employee current on new developments and invite inquiries. Training is an ongoing process which becomes constructive oversight.

Personnel Supervision. Supervision is the next essential of personnel control. Good supervision will reduce the cost of operating
your company by cutting back on the number of employee errors. If errors are corrected early, workers will get more satisfaction
from their jobs and perform much better.

Motivating Employees. Small businesses occasionally face particular Issues in motivating employees. In a large company, a
Fantastic employee can see An chance to advance into management. In a small company, you are the management. 1 thing you Might
Wish to Think about would be to give good workers a Small share of the profits, either via part-ownership or even a profit-sharing
plan. Somebody Who has a"share of this action" is going to be more Worried about helping to make a success of the business.

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