Many entrepreneurs witness an impressive increase in sale figures of their businesses over the period. This has a positive effect on their bottom-line profits for the same length of time. These proprietors may assume their establishments are moving in the right direction. You’re probably going through such a phrase. However, prominent industry experts suggest you shouldn’t become complacent just yet. These professionals explain there are many instances of lucrative organizations becoming bankrupt. This is because their owners experience a severe cash crunch which they couldn’t recover from. This why you should take the necessary steps to improve your cash flow position.
How can entrepreneurs avoid a cash crunch situation?
Larry Polhill is a former financial consultant from Arizona with more 25 years of valuable experience under his belt. He specializes in many diverse fields which include business finance, acquisitions, and corporate mergers. Many of his contemporaries and ex-colleagues hold him responsible for the success of many prominent companies. These corporate enterprises include Photocircuits Corporation, American Pacific Financial Corp., Arrowsight, Inc. and Cafe Valley, Inc. In each of these organizations, he held posts of Advisor, Director, Chief Executive Officer, and President. In fact, the officials of these establishments owe him a grateful for his services.
This financial expert explains a cash crunch has the potential to ruin any potential businesses. Entrepreneurs need to ensure their receivables arrive before their payables become due. If this is not the case, they are bound to face cash flow problems. The situation makes it difficult for them to pay their vendors and staff on time. These proprietors are not even in a position to incur necessary operating expenses. This raises questions of their creditworthiness in the market. He suggests these owners take the following 3 important steps to improve their cash flow position:
- Obtain lease on equipment, and real estate rather outright buy
Many entrepreneurs purchase the equipment or prime real estate property they need outright. They assume it is a better option than obtaining a lease on these assets. However, these owners soon realize they don’t have enough money to meet their operating expenses. This is when they face a cash crunch. However, when these proprietors enter into lease agreements, they ending making incremental payments. The costs they incur don’t exert too much pressure on their cash flow position.
- Scrutinize the inventory
Entrepreneurs take the necessary steps to scrutinize their inventory. These owners may notice they have certain slow-selling products in their premises. They can’t get rid of such goods as fast as the other items. In the process they tie-up most of their money on such stocks. This has a negative effect on their cash flow position. The proprietors should take the necessary step to dispose of such goods.
- Conduct checks on new customers
Entrepreneurs already know how late payments from clients can jeopardize their cashflow position. New customers may come to them with lucrative business offers. Before finalizing such contracts, they should assess their creditworthiness. Taking such a step ensures these proprietors receive their prompt payments from them. This helps to strengthen their cash flow position.
According to the financial consultant Larry Polhill, no entrepreneurs want to experience a cash crunch. Such a situation can ruin their reputation and creditworthiness in the market. People will probably think twice before entering into contracts with them. Fortunately, implementing the above 3 important steps can help them avoid such a situation.