Many small to mid-sized business owners (This goes for individuals as well) suffer from “hand to mouth
syndrome.” In more severe cases it’s called robbing Peter to pay Paul.
You may know it well, or see it coming or worked thru in the past…you know it in many different lights. It’s checking the mail box or paypal account, to see if clients have paid so you can hurry and turn around and pay pressing or past due vendors or meet payroll in a day or two.
Cash - flow (dollars in and dollars out in the simplest form) is critical to any business or individual. Having funds at the right time to pay bills can be a challenge. Ironically, the hand to mouth syndrome often starts with procrastination when it comes to sending out invoices. You would be surprised at the number of small businesses that delay billing until they need the money.
You may know it well, or see it coming or worked thru in the past…you know it in many different lights. It’s checking the mail box or paypal account, to see if clients have paid so you can hurry and turn around and pay pressing or past due vendors or meet payroll in a day or two.
Cash - flow (dollars in and dollars out in the simplest form) is critical to any business or individual. Having funds at the right time to pay bills can be a challenge. Ironically, the hand to mouth syndrome often starts with procrastination when it comes to sending out invoices. You would be surprised at the number of small businesses that delay billing until they need the money.
The Stash is Important
Some call it a rainy day fund, others a stash, some an options fund. Whatever you call it…you need to build a reserve that can be used to give yourself or business additional time, and slack to look for other options or for a tool to take advantage of other opportunities. In the business community this is called working capital which is current assets minus current liabilities.
Without Stash (Wiggle Room)
You’ll Get Compromised
Picture this: you’re on an elevator, going to the top floor. As the elevator stops at each floor, 2 or 3 more people enter. You are slowly pushed to the back corner as free space shrinks. Now, if you had to act you’d quickly find your ability has been compromised.
Not a fun experience is it! Been there done that, right! This may well be what you face in your business – as bills and creditors crowd you. You or your business is paralyzed. You need some wiggle room and no one can plan and work towards it except yourself.
Not a fun experience is it! Been there done that, right! This may well be what you face in your business – as bills and creditors crowd you. You or your business is paralyzed. You need some wiggle room and no one can plan and work towards it except yourself.
Harness the True Power of Capital
Working Capital
Up till now we’ve called it a “stash.” In the business and banking world it’s called working capital.
Important to discern is that there are two very different definitions of working capital. One definition is on the liability side of the balance sheet as debt. The other is on the asset side of the balance sheet as cash and equity in inventory and accounts receivable.
The liability definition: Working capital is the money you borrow from a bank in order to finance day to day operations such as a line of credit. It is the use of debt to access cash. When applying for credit, the more cash that was injected into a business by the use of debt - the more strikes against you.
The asset definition: Working capital is the money or “skin” you have in the game. It is the amount of cash a business has in liquidity that is used to finance day-to-day operations.
To us at Business Logic, the asset defintion of working capital is our focus – how much equity does the company commit to cash in financing day-to-day operations.
Working capital provides flexibility and is considered liquid funds available to your business operation. These funds come from your earned profits over time, or your own money you have invested.
While it may be convenient to use debt as the venue to cash, the day may come when that is not possible if you cannot qualify for more debt - you are tapped out. Your experiencing hand-to-mouth syndrome.
Almost everyone faces tight money or cash flow problems at some point in time (and some of us…on a regular basis) and it’s just a matter of zero’s, affecting the smallest to the largest business. Your need for an extra $500 can be just as pressing as another business’s need for $50,000..
Important to discern is that there are two very different definitions of working capital. One definition is on the liability side of the balance sheet as debt. The other is on the asset side of the balance sheet as cash and equity in inventory and accounts receivable.
The liability definition: Working capital is the money you borrow from a bank in order to finance day to day operations such as a line of credit. It is the use of debt to access cash. When applying for credit, the more cash that was injected into a business by the use of debt - the more strikes against you.
The asset definition: Working capital is the money or “skin” you have in the game. It is the amount of cash a business has in liquidity that is used to finance day-to-day operations.
To us at Business Logic, the asset defintion of working capital is our focus – how much equity does the company commit to cash in financing day-to-day operations.
Working capital provides flexibility and is considered liquid funds available to your business operation. These funds come from your earned profits over time, or your own money you have invested.
While it may be convenient to use debt as the venue to cash, the day may come when that is not possible if you cannot qualify for more debt - you are tapped out. Your experiencing hand-to-mouth syndrome.
Almost everyone faces tight money or cash flow problems at some point in time (and some of us…on a regular basis) and it’s just a matter of zero’s, affecting the smallest to the largest business. Your need for an extra $500 can be just as pressing as another business’s need for $50,000..
Tackling and solving hand to mouth syndrome
Where to start
Begin where you are… moving forward one step at a time.Even if it’s a small one. Every journey begins with the first step. Take Action!
When to start
Now! The sooner the better.
What is the money goal
amount for your reserve or rainy day fund?
Your plan to achieve your goal?
$50 a week, 5% of each deposit… etc!
Pick an amount or percentage of sales or deposits to set aside... on a regular basis. Be consistent and commit to a daily, weekly, or monthly plan to deposit money into a savings account. Smaller, consistent steps will get you to your goal... quicker than infrequent unmeasured steps.
This routine, system or habit can be a lifesaver and a business saver as well:
4 Steps to Success
How to overcome any challenge or problem
Problem
Need cash reserve of $1,750 ... $17,500. My wiggle or
options fund.
Obstacle
Stressed cash flow and figuring out where to get funds,
then squeezing them out of each deposit.
Plan
Each deposit set aside $100 if depost is $750 or less or at least 5 percent of deposits per month. Open savings or checking account to reserve cash!
Make incremental cuts in costs and put the amount of the cut into a savings account.
Make incremental price increases - however slight - and bank the difference.
Explore value-added opportunities to increase revenue while cost remains relatively constant.
Make incremental cuts in costs and put the amount of the cut into a savings account.
Make incremental price increases - however slight - and bank the difference.
Explore value-added opportunities to increase revenue while cost remains relatively constant.
Help
Tell Mary about the goal and have her and Fred remind
me and check up on me. Be accountable to someone.
Make and Keep More of Your Money
Once you feel you are past the immediate hand-to-mouth syndrome, you can put your extra cash to use in cutting costs – using less credit, paying accounts payable before there are finance charges and taking advantage of any discounts for cash. The more you build your own working capital the stronger your company becomes and the more you can capitalize on opportunities.
Over the course of my business career, I have experienced a series of ups and real downs. I have used a variety of systems and planning methods, some sketched out on napkins, scratch paper, and later on the computer.
The Business Pulse Calculator is a result of working with numerous diverse accounting tools over the course of many years and finally condensed into a workable, successful system to track and analyze my business. A few minutes or an hour or two a month reviewing and thinking about my business finances and goals pays tremendous dividends.
Simply take financial data you already have, such as, computer accounting software, spreadsheets, receipts in a shoebox or that plastic bag in the pickup or on the filing cabinet, and enter the data when asked in the Business Pulse Calculator. As you enter data, watch how the spreadsheet gives you the picture of your business finances. It may be good or not so good... remember this is the starting point for something great. For many this overview may be a first time experience. If you’re not too keen on how to do the analysis, the tutorial manual will walk you through the steps.
In the Business Pulse Calculator the historical trends graphics tells you what has happened over time. You can select, pick or choose what to compare. Such as, Cash in and Cash out, what is on the horizon in payables, notes due, and what money you have coming in and when. It also includes something it took me a while to learn. What are my bankers or investors thinking? How much money do I personally have in the game and how much do they have? If out of balance meaning bankers have a larger investment in the business, what steps do I need to take to improve my working capital position?
Over the course of my business career, I have experienced a series of ups and real downs. I have used a variety of systems and planning methods, some sketched out on napkins, scratch paper, and later on the computer.
The Business Pulse Calculator is a result of working with numerous diverse accounting tools over the course of many years and finally condensed into a workable, successful system to track and analyze my business. A few minutes or an hour or two a month reviewing and thinking about my business finances and goals pays tremendous dividends.
Simply take financial data you already have, such as, computer accounting software, spreadsheets, receipts in a shoebox or that plastic bag in the pickup or on the filing cabinet, and enter the data when asked in the Business Pulse Calculator. As you enter data, watch how the spreadsheet gives you the picture of your business finances. It may be good or not so good... remember this is the starting point for something great. For many this overview may be a first time experience. If you’re not too keen on how to do the analysis, the tutorial manual will walk you through the steps.
In the Business Pulse Calculator the historical trends graphics tells you what has happened over time. You can select, pick or choose what to compare. Such as, Cash in and Cash out, what is on the horizon in payables, notes due, and what money you have coming in and when. It also includes something it took me a while to learn. What are my bankers or investors thinking? How much money do I personally have in the game and how much do they have? If out of balance meaning bankers have a larger investment in the business, what steps do I need to take to improve my working capital position?
Sometimes the demands of bankers, investors and creditors were hard to swallow.
In many cases my hands were tied, until I learned to set aside money so I could have, “wiggle room” such as a stash of cash giving me other options. So you can write a check and tell them to get lost or shove it... in whatever language or emphasis you prefer!
The hard learned discipline of setting money aside is becoming easier.
Yes, in this world it is almost impossible to circumvent borrowed money. But I can now bring my “stash” to the table so I can have the “staying power” or working capital to manage my business without the dictates of others or current market conditions. I sleep better at night, enjoy my week-ends more with a peace of mind that I manage my funds to my advantage not like I did for years... being in constant crises mode.
It’s not how many times you fall, but the fact that you get up to give it another try!
Check out the Business Pulse Calculator. Our blood, sweat, tears and experience may well save your stomach, business and health.
Equally important in other ways, the Business Pulse Calculator offers more than just following and building working capital. It is the foundation of financial management and oversight. By walking through the back pages of accounts receivable, inventory, cash, accounts payable and debt obligations, you are able to keep the finances of your company upright - the professional duty of chief financial officers and controllers.
We would love to hear from you in your progress, challenges or setbacks… should you need a sounding board… Been there and done that! We listen!
Equally important in other ways, the Business Pulse Calculator offers more than just following and building working capital. It is the foundation of financial management and oversight. By walking through the back pages of accounts receivable, inventory, cash, accounts payable and debt obligations, you are able to keep the finances of your company upright - the professional duty of chief financial officers and controllers.
We would love to hear from you in your progress, challenges or setbacks… should you need a sounding board… Been there and done that! We listen!
By Ken Stavast
A serial entrepreneur, accounting and payroll software developer, marketer and consultant to small to mid sized business operations. Can be reached at AffordableSolutionsForBusiness.com or Business LogicUSA.com or HomeRunmarketing-USA.com on the contact page.
A serial entrepreneur, accounting and payroll software developer, marketer and consultant to small to mid sized business operations. Can be reached at AffordableSolutionsForBusiness.com or Business LogicUSA.com or HomeRunmarketing-USA.com on the contact page.