Date archives "November 2008"

Advice Communication Customer Service Strategy

Non-Financial Metric #1: Customer Satisfaction

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”The single most important thing to remember about any enterprise is that there are no results inside its walls. The result of a business is a satisfied customer.” Peter Drucker

Acquiring customers is a challenging task and takes days, months and even years to do. Once you have acquired customers a sense of complacency often sets in. One feels the hard work is done and now we can sell to this client for a very long time. How I would like that to be true. Unfortunately, as we all know the real world works differently. Acquiring customers is the first step, providing value and satisfying the customer is where the actual work begins. It is a well known fact that acquiring a new customer is 5-10 times more expensive than retaining your current customer base. Therefore as business owners we have to do whatever we can to ensure that we provide substantial value and our customers are satisfied with our products or services. Listed below are a couple of steps to help measure customer satisfaction:

1. Identify Touch Points: A customer comes in contact with your product or service either directly or indirectly. Measuring indirect contact such as interaction with other customers or reading online reviews is challenging to track and measure. However we can keep a much closer eye on direct touch points such as websites, telephone operators, retail stores, office or any other points where the customer is in direct contact with us. To do this we need to build a list of all possible touch points and track them closely to see where and how our customers interact with us.

2. Selecting Sub Metrics: A customer satisfaction index is made up of several sub metrics which contribute to a final score. For instance speed of service, perceived quality, and pricing and trust are a few sub metrics one can use. The selection of these sub metrics will depend on the type of product or service to be provided, the type of touch points used and any other factors which impact directly on  the interaction between the customer and the business. It is important not to overload oneself with too many metrics. Select them carefully,  understand and align them with what you deem necessary for an accurate customer satisfaction score.

3. Select Measurement Method: Once we have selected the metrics, we have to select the best way to measure them. Some of the commonly used measurement methods are surveys, focus groups and live observation. These are effective in collating information in a reliable and valid manner. Depending on the size of your sample and the amount of information that needs to be collected,  select a method which has the ability to generate a reliable and valid result.

4. Technology: With the advent of the internet, collecting information from customers at major touch points has become easier. Many website have incorporated feedback widgets which allow the customer to leave their comments and opinion, some websites have live operators which interact with customers to get their feedback and other tools such as, www.getsatisfaction.com. This provides a community platform where customers publicly rate and talk about the service. As entrepreneurs we need to leverage these tools to get information faster and more reliably from major touch points.

Once data is collected, there needs to be a structured way to process and assess the business. Unless the business can use the data collected to enhance customer experience, there is little point in undergoing such an elaborate exercise. It is therefore essential that you have  a clear idea about what you want to measure and why from the very beginning. Align your goals and targets in selecting appropriate methods.

Advice Strategy

Using a Balanced Scorecard

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“The performance culture really is in deep conflict with the learning culture. It’s an unusual executive who can balance these.” Paul J. H. Schoemaker

Robert Kaplan and David Norton developed a performance measurement framework, that added strategic non-financial performance measures to traditional financial metrics, to give managers and executives a more ‘balanced’ view of organizational performance. In their point of view companies who only use financial metrics as the sole determining factor of how a business is performing, miss out on several key components which drive the business as a whole. Non financial metrics are being increasingly integrated into company evaluations throughout the world. CEO’s and CFO’s alike, are beginning to rely on these measures even without documented frameworks to accurately assess them. My experience as an entrepreneur tells me that meeting financial expectations alone will not lead to success. I have used the balance scorecard framework to evaluate and advise many businesses I am a part of. The framework includes 4 components:

1. Customer Perspective: Customers’ concerns tend to fall into four categories: time, quality, performance and service, and cost. As managers we need to develop metrics pertaining to our business model which have the ability to effectively measure these categories. How fast are we getting the product/service to market? What is the perceived quality of our product/service? How do we compare with our competitors on performance and service? How do we compare with our competitors on price? We have to develop metrics which provide us with a dashboard view from the customer’s perspective so as to continuously stay on top of the game and deliver superior value to customers.

2. Internal Business Processes: To achieve customer based metrics we have to develop internal business processes which support them. One cannot expect to launch products/services on time, without adequate internal metrics tracking their development. Quality of products/services need to be evaluated through frameworks such as six sigma to ensure that we match expectations. Identify core areas where your business holds competitive advantages, and continue to refine and develop those processes to ensure that a lead is held over the competition. Without substantial controls on internal business processes one will face difficulty reaching broader business objectives.

3. Learning & Growth: In today’s world we have to be continuously equipping ourselves with knowledge pertaining to current trends and developments. An organization needs to focus on continuously innovating and pushing itself to achieve greatness. This component of the framework focuses on the environment that is created within an organization. Important factors such as employee’s access to training opportunities, career development through mentors and advisors, as well as access to latest technological development are measured within this component. Without a workforce which is always growing, an organization will begin to stagnate and lead to several structural problems.

4. Financial: This component was discussed in great detail last week in the series (5 Key Financial Business Metrics). Financial measures are important indicators of the health of a business. Used together with the components listed above, one is able to identify the close relationship they have with each other. If customer satisfaction levels are falling, this will impact directly on turnover growth. As mentioned in the prior series, it is important that financial metrics be aligned with broader strategies to provide freedom for a business to grow. Limiting ourselves to numbers and achieving x% growth or profitability in a quarter is short sighted and will not lead to long term growth.

With sound understanding of the balance scorecard, one can use it to develop metrics in each quadrant in line with broader strategies. It enables a business to clarify vision and strategy and translate them into action. In this week’s series I will go through five broad based non financial metrics which can be used by most businesses. I look forward to your comments and feedback.

Advice Finance

5 Key Financial Business Metrics

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“If you don’t measure something, you can’t change it. The process of leadership is one of painting a vision, then saying how you’re going to get there, and then measuring whether you’re actually getting there. Otherwise, you risk only talking about great things but not accomplishing them.” Mitt Romney

As business owners we have to have our ears to the ground constantly to gauge how the business is performing. With the number of things happening in parallel, keeping up to speed is often a juggling act.  The financial management of business is a critical aspect of the overall functioning of the enterprise. Mismanagement in this area can have detrimental ramifications, these can essentially put you out of business. Keeping track of financial activity on a periodic basis is a necessity. To make the process of review easier, specially when one is running multiple businesses or business units, is to use metrics to get an overall perspective. Outlined below are five key financial metrics I use to assess the health of a business.

1. Net Cash Flow: This is by far one of the most important metrics, and one has to continuously keep an eye on it. Net cash flow is simply calculated by subtracting cash inflows with outflows. Alternatively, it can also be calculated by adding depreciation and other non cash expenses to net profit. Without adequate liquidity a business is often unable to reach its potential and will suffer severe growth issues. Use this metric to monitor the liquidity health of your business and analyze trends in areas beginning to run low on reserves. To learn more about how to calculate and use the net cash flow metric please click here.

2. Turnover Growth: Evaluating and estimating revenue growth is a tricky and challenging process. It is often based on assumptions and does not take into account unexpected events and scenarios. It requires us to take into account industry growth averages and our share of the market and industry pricing strategies, and then come up with a reliable metric. However from an historical perspective this metric can provide a reliable indicator to judge the performance of the business and the sort of average growth figures to expect. To learn more about how to calculate and use the turnover growth metric please click here.

3. Gross Margin: Gross margins is a very good metric for investors to evaluate the viability of a business. Gross margins are usually bench-marked against industry averages to see how efficiently a business is structured. As business owners, we have to do all we can to steadily increase this metric or find alternative methods to increase the metric through diversification. Periodic review cycles need to be implemented to ensure that the business is growing in the right direction and at the right pace. To learn more about how to calculate and use the gross margin metric please click here.

4. SG&A Growth: Sales, General & Administrative (SG&A) expenses include, all salaries, indirect production, marketing, and general corporate expenses. This constitutes the bulk of expenses that a business incurs and should be constantly reviewed. Each item needs to be evaluated and aligned with it’s contribution to the overall business vision. There needs to be a constant monitoring of marketing and IT expenditure to ensure that we are generating sufficient ROI’s for our campaigns and implementations. To learn more about how to calculate and use the SG&A growth metric please click here.

5. Operating Margins: This metric allows you to get an idea of the profitability of the business, and the potential to grow and scale the business further. To calculate this metric we need to know the firm’s operating income, which is revenue minus cost of goods sold (COGS) and general and administration (SG&A) expenses. This figure needs to be further divided by the firm’s revenue, to arrive at the percentage value of the firm’s operating margin. Businesses which operate with low operating margins must strive to reach revenue levels where they can take advantage of economies of scale. However businesses with higher operating margins can focus on providing a core group of products or services really well to its target segment. To learn more about how to calculate and use the operating margins metric please click here.

Financial metrics are important to keep us abreast about the financial health of our business. However, one should not become fanatical in using them as the sole indicator of how a business needs to be run. In many examples I have seen business owners become obsessed with hitting certain financial targets whether it be operating margins or net cash flow at the expense of the future growth of the business. There needs to be a balance and one needs to be able to see the bigger picture as well. The metrics discussed above provide an holistic picture of the current health of your business and should be used to identify areas of pain to help the business grow faster.

Advice Finance

Financial Metric #5: Operating Margins

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“Be precise. A lack of precision is dangerous when the margin of error is small.” Donald Rumsfeld

One sets up a business with the aim of providing prospective customers with superior products/services and in return, to be highly profitable. Operating margins tell us how much money the business makes on every $ of revenue. To calculate this metric we need to know the firm’s operating income, which is revenue minus cost of goods sold (COGS) and general and administration (SG&A) expenses. This figure needs to be further divided by the firm’s revenue, to arrive at the percentage value of the firm’s operating margin. For example if the operating income is $5 and revenue is $100 the operating margin of this business is 5%. If all the other firms in the same industry enjoy operating margins of 10%, then this particular business has major issues regarding their COGS and SG&A. There are a couple of things you should keep an eye on when evaluating this metric.

1. Revenue: Calculate where the majority of revenues is being generated from? Is there a particular product or service which contributes significantly to the overall figure? Is the revenue spread out evenly over many product or services? Each scenario poses potential opportunities and risks. Over reliance on any one product may be risky as a long term strategy. On the other hand, spreading the business over many products or services opens up the possibility of newer competition attacking the business on multiple fronts. A balance needs to be found where revenue can be maximized.

2. Fixed & Variable Costs: Pay attention to the cost structure of the business being evaluated. If the business has a high fixed cost structure with low variable costs, then insufficient revenue generation means operating on smaller operating margins. This can be both an opportunity and a threat to the business. If the industry in question is relatively untapped, there is larger potential in promoting it’s product/service with low variable costs. However if the industry is saturated with large entrenched players, it then becomes challenging to grow the business significantly. Alternatively with low variable cost structures, the business has more flexibility and can usually outmaneuver larger companies.

3. Industry Analysis: How does the company’s operating margin compare to its peers in the industry? Finding this data is usually quite challenging, however rough guidelines can be found with hard work. Once we have these guidelines, the business is bench marked on various factors compared to the competition. This gives us the ability to compare cost structures, revenue splits as well as overall operating margin comparisons.

This metric allows you to get an idea of how profitable the business actually is, and the potential to grow and scale the business further. Businesses which operate with low operating margins must strive to reach revenue levels where they can take advantage of economies of scale. However businesses with higher operating margins can focus on providing a core group of products or services really well to its target segment. As a business owner, keep a sharp eye on operating margins and continue to evaluate how you stack up against the competition.

Advice Finance

Financial Metric #4: SG and A Growth

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“There is one rule for industrialists and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible” Henry Ford

Sales, General & Administrative (SG&A) expenses include, all salaries, indirect production, marketing, and general corporate expenses. This constitutes the bulk of expenses that a business incurs and should be constantly reviewed. The entire concept of running a lean enterprise extends from the fact that we use an optimal mix of resources to achieve our target goals. However, this is usually not the case in the real world and businesses tend to inflate costs drastically whenever they have some success. This creates an unhealthy dependence on extra resources and also leads to complacency within the team. When cuts need to be made during recessionary periods,  there is a detrimental impact on the team’s overall performance in such organizations. From the onset we have to continuously monitor our SG&A growth in relation to revenue growth as well as industry averages. This helps keep an eye on the ball and puts emphasis on efficiency. When evaluating this metric there are a couple of factors to keep in mind.

1. SG&A Break Up & Alignment: How are costs distributed through the business? We need to identify which costs contribute significantly to overall costs. This helps us map out IT, marketing, sales, payroll and other components which usually make up the bulk of expenses. Once we have this breakdown, we can analyze each component further and see how it contributes to the overall strategic vision of the company. If your company has a short term goal of increasing market share in its industry through mergers and acquisitions, there needs to be focus on getting the right people on the team instead of bulking up marketing expenses. We see hence how breaking up the SG&A and aligning it in accordance to the business vision is important.

2. ROI: Each major component such as IT or marketing, needs to be measured. When assessing your business it is important to delve into each component to gauge which technologies and campaigns are delivering an acceptable ROI and which are not. This exercise highlights non performing costs which are being incurred without adequate return. It is through this exercise that one can eliminate these costs and make the entire business more efficient.

3. Growth %: One also needs to pay attention to how fast the SG&A figures grow when the business begins to scale. This percentage needs to be kept in check and must be reviewed regularly to ensure that costs are not being overly inflated with growth. This usually happens when we begin to hire too many people, launch unnecessary marketing campaigns or have technology infrastructures implemented when not needed. This leads to erosion of operating margins and can have a detrimental impact on growth. If possible benchmark your SG&A against industry averages as well to ensure that growth is specifically aligned with the overall strategic direction the business wants to take.

SG&A needs to be kept in control and be constantly reviewed. However, I do not like pegging its growth to some budgeted figure. SG&A growth needs to be aligned with the business vision. Restricting it from growing over a certain percentage may have a short term benefit to the business, it may however prevent it from reaching its long term goals.

Advice Finance

Financial Metric #3: Gross Margin

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“An important and often overlooked aspect of operational excellence is regularly comparing actual costs to budget assumptions – not just the numbers in the plan. Understanding assumption deviations will help improve the accuracy of future forecasting.”Bob Prcsen

Before we calculate gross margin, we first need to know the cost of goods sold (COGS). These are direct expenses incurred in the manufacturing of a product, or the rendering of a service. There are many methods used to calculate this metric. Firstly it has a lot to do with the type of business one is running. For example, if you are running a DVD store do you include the store rent in the COGS, or as an indirect expense. Such questions will definitely come up when you are doing COGS calculations. You need to ask yourself “how is this expense related to the product/service?”and “if you were to take away this expense would you still be able to deliver the product or service?” Ultimately this will depend upon the product or service you are providing, the goal being to reach a figure which is an accurate representation of how much it costs to produce or deliver a product/service.

After calculating our COGS we can calculate gross margin by dividing gross profit (Revenue – COGS) with Revenue. If we sell a widget for $1 and we incur a direct cost of $0.4 to produce it, our gross margins are 60%. This is a very important financial indicator as it indicates how much cash will be  flowing into the business. When gross margin falls dramatically due to increase in raw material prices for example, it impacts detrimentally on every part of the business. It is therefore critical that management keep a keen eye on this metric and not let it drop below levels that will make it difficult for the organization to grow. A couple of things to keep in mind when looking at gross margins are:

1. Pricing Policies: When evaluating your business and finding ways to improve gross margins, pricing policies play an important role. When a business is in a competitive field, for example retailing of basic computer components, margins tend to erode due to competitive downward pressure. As a business owner one needs to continuously check on pricing strategies employed by competitors and how one can outmaneuver competition based on complementary services rather than price wars. Evaluating pricing strategies is hence critical to maintaining and improving gross margins.

2. Inventory Management: If your business currently holds large stock of products that are manufactured or purchased one needs to manage this rolled over inventory carefully. Left over inventory is a component of calculating COGS and when a business begins to hold on to larger quantities of inventory, margins begin to erode because of stock depreciation. Inventory must be managed intelligently to ensure that the business does not expose itself to unnecessary risks which will impact both its margins and cash flows.

3. Periodic Review: In today’s world where massive price fluctuations are a norm, one needs to pay very close attention to gross margins. This is especially true for business owners who operate with slim margins. In the past when I have been involved with product based retailing ventures, I set up weekly meetings to access this metric to understand how we were faring through various distribution channels so as to continuously adapt our strategy and plan according to prevailing market conditions.

Gross margins is a very good metric for investors to evaluate the viability of a business. Gross margins are usually bench-marked against industry averages to see how efficiently a business is structured. As business owners, we have to do all we can to steadily increase this metric or find alternative methods to increase the metric through diversification. Periodic review cycles need to be implemented to ensure that the business is growing in the right direction and at the right pace.

Advice Finance

Financial Metric #2: Revenue Growth

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“Always be closing…That doesn’t mean you’re always closing the deal, but it does mean that you need to be always closing on the next step in the process.” Shane Gibson

Revenue growth is a metric which is spoken about widely whether you are a brand new start-up or an established business. It is the one metric which investors are always keen to learn about. Revenue is quite simply the number of products or services sold, multiplied by the price. Calculating revenue is fairly  straightforward. Evaluating growth of revenue over a stipulated period of time provides a lot of information regarding the future prospects of the company.

Early stage start-ups that do not have any present revenue, or then very little, need to develop projections to gauge future revenue. Hockey stick graphs are a norm when this information is produced, I  strongly advise backing up projections with sound assumptions and research. For established companies,  regular evaluations of revenue growth projections are required to ensure that they are being met. Some key factors to keep in mind regarding revenue growth are:

1. Industry Growth: One needs to first evaluate the growth speed of the market they operate in . This helps create broad benchmarks for future prospects. For example the overall print media industry is witnessing a massive slowdown in the west. Getting into this particular industry at this point in time is not a viable future growth prospect. However, the online media industry is booming and is growing at a phenomenal pace these days. When evaluating a business it is good to get a broader perspective on what is happening in the bigger picture.

2. Market Share: Depending on the market share the business currently holds, will directly impact its ability to grow revenue. For instance, if you are a market leader in office automation products like Microsoft and control over 70% of the market, a 10% yearly growth is not a realistic target. However if the market is fragmented like the hand held mobile sector, a new entrant like Apple was able to come in, almost immediately take a substantial share in the market, and has aggressive growth targets for the next couple of years. Therefore, evaluate your market position when creating revenue growth estimates.

3. Pricing: Depending on the type of pricing strategy adopted, one can determine what sort of revenue growth is possible. If for instance,  the business is planning on increasing prices next year, and even though this could positively impact margins, it could have a negative impact on units sold. This will impact directly on revenue and thus growth estimates will have to be adjusted likewise. The business must find a balance between its pricing and revenue growth strategy to reach its target.

Evaluating and estimating revenue growth is a tricky and challenging process. It requires a lot of assumptions to be made and does not take into account unexpected events and scenarios. However from a historical perspective this metric can provide a reliable indicator to judge how the business has performed and what sort of average growth figures to expect.

Advice Finance

Financial Metric #1: Net Cash Flow

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“Performance stands out like a ton of diamonds. Non performance can always be explained away.” Harold S. Geneen

Last week I dedicated an entire series to better management of business cash flows. This is a critical function and holds the key to success for many companies. When I evaluate the health of a company, this is probably the first financial indicator that I look up. I have learnt through experiences that one can have a fantastic business model, be earning a nice profit providing a product/service, but if the business is plagued with recurrent liquidity problems I am wary about making an investment into the venture. Net cash flows is simply calculated by subtracting your cash inflows from your outflows. When looking at this metric there are a couple of things to look for:

1. Cash Inflow Trends: This provides data regarding how cash inflows have progressed over the historic period under evaluation. Is there a stable growth of inflows over time? Are the inflows cyclical in nature? How long does it take for an order to be converted into a cash inflow? What one is looking for is substantial evidence regarding the viability of growth and stability of cash streams of the business .

2. Cash Outflow Trends: At what percentage do cash outflows grow with an increase in cash inflows? Does the business experience diminishing returns after a certain inflow threshold has been reached? Are outflows cyclical in nature or is there a fixed outlay? If a business has a high fixed cash outflow without the support of growing inflows, there is bound to be a substantial cash glut at some point. Also, if inflows are slow to be realized into cash and there are long periods where net cash flow is negative, this does not reflect well on the business sustainability.

3. Overall Historic Trends: Equating both the inflow and outflow streams we get a good overall picture of the net cash flow situation over a certain period of time. This will show how resilient the business is in recessionary periods and how it conserves and invests cash during boom periods. If managed well we should see a positive net cash flow situation that will be a good representation of the overall health of the business. 

A business which is constantly plagued with cash flow gaps will have a challenging time expanding the business. Such a business must re-evaluate it’s current business model and re-analyze it’s inflow and outflow trends. Through this analysis one should be able to arrive at pain points in the current model such as “excessively long payment cycles,” and find ways to resolve this issue by tweaking operational procedures and overall business strategy. 

Related Posts:

– 5 Tips for Better Cash Flows

Advice Finance

Metrics for Business

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“For me, goals and daily metrics are the key to keeping me focused. If I don’t have access to the right stats, every day, it is so easy for me to move on mentally to the next thing. But if I have quick access to key metrics every day, my creativity stays within certain bounds–my ideas all center on how to achieve our goals.” Paul Allen

My last series has led to a couple of interesting questions regarding what metrics a business owner should  follow closely to keep an eye on how well or badly the business is performing. Without access to these important facts and figures on a regular basis, the business owner tends to lose sight of the end goal and gets caught up in the daily grind of running the business. Unfortunately this leads to situations which the business may not be prepared for and can severely cripple business growth. Metrics are key tools to help give the entire team a dashboard view of how well the business is doing in comparison to the what they set out to do. Metrics can be split up into two segments, financial and non-financial. Focusing solely on just one of them will create several blind spots for the business owner.

When looking at a business, several key metrics come to mind, such as revenue, profitability, growth, customer acquisition and even customer satisfaction. Each one of these tell a story of how the business is performing in various segments. The important aspect of evaluating metrics is paying attention to the right ones. Depending on the structure of your business and the industry you are in, certain metrics will have greater weightage as compared to others. For example if you run a restaurant, customer satisfaction, table turnaround time and margins are critical metrics which need to be looked at on a regular basis. It is when we become distracted or complacent about the current situation that problems begin the creep up.

In light of this I have decided to do a two part series. The first part is going to be focused on financial metrics for businesses. I am going to select five key financial metrics which I believe are critical to most organizations. The next part of the series will be based on five key non-financial metrics that every business owner should keep a keen eye on. Systems need to be put into place to tabulate these metrics and processes outlined to make sure that they are reviewed on a regular basis. This will help business owners to see just how “well” they are actually doing. In some cases the metrics will not be directly applicable to your business model. I will be more than happy to advise business owners about varied business models in metrics that they should be evaluating for their models.

Advice Finance Strategy

5 Tips for Better Cash Flows

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“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” Warren Buffet

Mismanagement of cash flows is a leading cause of failure among businesses. Business owners do not realize how critical it is to budget and plan cash flows from the beginning of the venture and most times a liquidity crisis catches them completely off guard. This often leads to irrational last minute maneuvering which amplifies the problems at hand. To ensure smooth cash flow cycles we have to ensure that we are extremely vigilant of the financial health of our business from the onset. This may appear to be over simplistic advice, however the truth of the matter is, not enough emphasis is given to this function. The excitement lies in closing those million dollar deals and creating fancy marketing campaigns. Reality of the matter is that if we do not have the financial structure in place to support these deals and campaigns we will soon find ourselves in a lot of trouble. Listed below are a couple of tips which have helped me manage cash flows better.

1. Inflows & Outflows: From the onset identify your inflows and outflows. If you have adequate historic data, map out how long on average it takes to receive cash after providing your product/service. Next carefully map out all your expenses, and dates when they need to be paid. Next we have to minimize the time between the two flows. Usually inflows are much slower than expected and this needs to be compensated by negotiating favorable agreements with suppliers, stocking less and invoicing your customers at regular intervals. To learn more about the importance of mapping out inflows and outflows please click here.

2. Cost Management: Cost cuts do not necessarily require a business to layoff staff or drastically cut marketing expenditure. I take the approach of measuring cost effectiveness in terms of every product or service that the business is providing. The goal must be to provide the product or service at a lower cost than the competition. Identify all direct costs, incremental costs of increasing volume, fixed costs and overall cost structures in comparision to the competition. This does not necessarily have to be reflected in lower price points. As we widen the cost comparison between competitors, we are able to hold a much stronger position in the overall industry. To learn about each cost in greater detail please click here.

3. Marketing: Cutting marketing expenses to conserve cash is often not the most optimal solution for solving one’s cash flow problems. Assessing marketing strategies and tactics needs to be practiced on a regular basis. It is not wise to make marketing expenses cyclical with business cycles. With optimized marketing campaigns and strategies in place, a business has greater chances of avoiding these cash gluts as business is constantly being generated at a healthy level. To learn more about marketing strategies during a liquidity crunch please click here.

4. Technology: Gone are the days of keeping track of your business expenses on excel sheets. As a business owner today we should use one of the many accounting packages available to make sure we always have a financial snapshot of the health of our business. This will provide us with the ability to quickly identify trends and potential liquidity crunches before they take place. Please click here to read five questions you need to answer before selecting which accounting package is right for you.

5. Last Resort Measures: There will be times however when a liquidity crisis will hit . It is important that when it does we remain calm and evaluate the options we have instead of making rash decisions. The options I have used during these period of times are, discounting, credit cards, loans from friends and family, invoice factoring and secured credit lines. All of these options need to be used when all other alternatives have been exhausted. Attention needs to given to ensure that all documentation has been read carefully and that one is fully aware of the pro’s and con’s of each measure. To learn more about each measure please click here.

Those who have experienced liquidity crunches realize how stressful and frustrating these cycles are. They can result in partners leaving the business, unpleasantness at the office and even eventual closure of the business. Using some of the tips provided above we can avert a number of these situations. It comes down to better financial planning and catering for unforseen events. We have to be prepared when such situations arise and must deal with them face on. There is no need to dig ourselves deeper into a hole by using temporary fixes. If the business that you are running is repeatedly running into cash flow problems, do your best to re-engineer it from the ground up, or have the discipline to change boats.