Cash-flow management is at the heart of every business, and that's doubly true in the rough and tumble world of retailing.
Here, the line between liquidity and bankruptcy can be razor thin.
1. Understand how cash flows in and out of your company, and how that fluctuates throughout the year.
2. Establish, and continuously update, a 12-month cash flow projection. Think of this forecast as an early warning system that will help you have enough cash on hand to ride out slow periods.
3. If you don't understand 1 and 2, get expert advice. Your business depends on it.
Put simply, positive cash flow means having more money flowing into your business than flowing out. Business 101 stuff for sure, yet not having enough cash on hand to pay bills is still one of the most common reasons companies fail.
"There are some basics of business that you just can't miss, and unfortunately too many people do," says Peter Brown, National Leader, Private Company Services at Deloitte.
Brown stresses that no company is immune from the impact of a recession or a fluctuating Canadian dollar. But for most businesses, cash flow is generally predictable.
"It's important to monitor the key indicators in your business - things like your bank account balance, accounts receivable turnover, inventory turnover and sales growth," he says. "Paying close attention to these metrics on a daily basis will help predict whether your company will have a cash issue or not."
There are practical ways to prepare for cyclical cash shortages. Métivier says companies can, for example, offer customers discounts for paying invoices early. Taking out a line of credit or term loan is another option. But don't knock on your banker's door when your company is bleeding red ink, Métivier stresses. "Approach them when your balance sheet looks strong."
One common mistake companies make is using their working capital to pay for long-term investments, such as new equipment, facility expansions or moving into new markets. You're better off using debt to finance these projects, or refinancing fixed assets to free up capital, Métivier says.
Bastide financed his Vancouver expansion with a loan from BDC, a loan from his landlord and a personal line of credit. He also sought expert advice, something too many entrepreneurs are either too proud or too frugal to do.
"Entrepreneurs are very proud people, and many believe, particularly when they start up, that they can handle everything themselves," Métivier says. "Don't be afraid of a little humility - talk to an accountant or a consultant. Both you and your business will be stronger for it."
