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by Stephen Parezo

December 26, 2005—In keeping with the festive season theme of it’s better to give than receive, Fiducial’s Arvada, CO, office recently presented a Cash Flow Seminar for area small business owners who came away with a better understanding of this vital business pipeline.

Cash flow is far and away the biggest challenge for any business, not just small businesses, because it takes money to make money, according to Randy Penn, Fiducial’s branch manager in Arvada.

“It’s very simple,” said Penn. “Sales ideas are the rule but cash is the lubricant that keeps that engine turning. Cash is the lubricant that allows you to stay in business”

The seminar was presented as part of Fiducial’s Strategic Management Learning System (SMLS) that utilizes step-by-step instruction and customizable worksheets so small business owners can immediately apply what they’ve learned to their own operations.

Penn indicated that though the turnout was modest for the event, an active discussion was held and those entrepreneurs in attendance admitted they received value for their time.

Cash is still king

“It was a valuable learning experience for them,” he said. “They thought the information seemed kind of basic, kind of simple, but it started them thinking in simple terms about their business and that’s exactly the point.”

An environmental contractor, for example, involved with cleanup projects in both the Gulf Coast and other hurricane areas, noted that the seminar got her to take another look at her cash flow situation. This involves the outflow of cash to get her company’s work accomplished and the long payment cycle to get compensated by the government.

Another business owner who has a gift basket company does 50% of her business during December so the challenge for her cash flow is to have enough materials and supplies as she goes into the holiday season and then to prosper the rest of the year on those receipts.

Cash is still king for every business, according to Penn.

“You have to extend, buy, manufacture and create in order to have something to sell,” he said. “Then you have to collect for what you sell—that’s all part of the cash flow challenge.”

Planning for shortfalls

Business owners must learn the importance of planning for negative cash situations because every operation is confronted by this problem at one time or another.

“You have to plan for when you’re going to have a cash surplus and plan for when you’re going to have cash shortfalls,” Penn said.

When a business has a cash shortfall, they have several options at hand. Sales is the most direct route to combating shortfalls followed by borrowing money or getting equity investors to invest in the business from the outside. Other avenues include either selling inventory at regular prices or offering discounts which may affect long-term gains. Additionally, they can sell something that they’re not using or make a contribution themselves.

“You can also collect money that is owed to you which is collecting on your accounts receivable by staying on top of who has owed you so much for how long,” he said.

No matter which route you take, Penn says cash flow is all about planning to know what you are going to expect to need and have to deal with.

“Small business owners need to handle their cash flow planning with the same intensity that they do the most important things in their business because this is one of the most important things in their business,” he said.

Stephen Parezo is the Media Manager for Fiducial.

Whatever your small business needs, your Fiducial tax and financial professional can analyze your situation and recommend an appropriate action plan. To locate a Fiducial office nearest you on fiducial.com, see the Zip Code Locator located in the upper right hand corner of the page. Do you have a particular topic that we should be writing about that can help your business? Please send your suggestions to: stephen.parezo@fiducial.com.

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