Paradox seems to play an increasing role in our day to day lives. Once we recognise the paradox in a particular situation we can very often learn from it.
Here are 6 that relate to cash flow problems:
1. Unrealistic Sales forecasts
Why, when looking at putting down a cash flow forecast, does sales growth suddenly take on a whole new dimension? It’s amazing. Even if we have made the mistake before, we still look at sales and convince ourselves that 25% growth per annum is not only possible, but likely over the next few years, when we have been averaging 10% at best over the last five years.
2. If only I had an extra £50,000….
Over the years I have spoken to many businesses about their finances, and ways in which we could get their cash flow back on track.
I must have heard a hundred times the words ‘If only I had £50k, it would all be all right’. Now it may be that the 50k was often a higher figure but it was always relative to the size of the business.
The irony here is, of course, that a one-off chunk of money is unlikely to cure an on-going cash flow problem. If the fundamental cash flow methodologies are properly implemented, then not only will the problems not re-occur, but it’s likely that you won’t need the 50k at all.
3. Slow payment of creditors flows through into slow payment of debtors
It is a common occurrence that a business can be, on the one hand, complaining about slow paying debtors whilst, on the other hand, making spurious excuses to creditors as to why they haven’t been paid.
Think how unhappy we all get when someone doesn’t pay us on time. This is exactly the same emotion that our creditors go through when they don’t get paid. This has a farther reaching impact on relationships than just cash flow, it destroys trust and ultimately respect, which is exactly what all good businesses should be based on.
4. Don’t give the financier all the information
We are quick to criticise banks and invoice finance providers when they don’t give us what we want, particularly when its increased facilities to handle a spike in cash flow.
Having sat on both sides of the fence, it is surprising how often there is a problem with information that management has agreed to provide: it is either late, incomplete or doesn’t materialise at all.
This holding back of information sets the hares running with the financier, who will of course fear the worst, and think that there has been some form of calamitous event that has undermined the viability of the client’s business.
Why would they lend more money?
5. Saying one thing and meaning another
My word is my bond. Of course I will pay you. Your money is safe with me. These are all phrases we have heard before. In my experience, they very often mean exactly the opposite. I have a very distinct memory of a customer, and I thought friend, 20 years ago using the ‘My word is my bond’ line. He never did pay and the next time he was seen was when he was in court.
6. Why do entrepreneurs never seem to think about cash flow?
The people who are developing new ideas and thinking about reinventing the business model never seem to think about the cash flow implications. That may be why so many entrepreneurs often enjoy a feast and famine type of existence. As George Bush reportedly asked what is the French word for Entrepreneur?
If we recognise Paradox, we can often learn a lot from it. I think this is particularly relevant to the cash flow issues described here.
If you have any comments on this article or would like to discuss cash flow management generally please contact me at john.thompson@transcapital.co.uk or on 0845 689 8750.
Image by: Andrew_B