Makarios Consulting Blog

The Cash Crunch — An Elephant in the Room

My friend looked at me with a smile and beamed about her business’s results for the past 6 months.  “Look at the turnaround,” she said.  “We are well into the black for the first time all year thanks to cost controls and our hard work to collect from our customers.”  She had every right to be proud…she had turned her business around by focusing on disciplined execution of her business plan.  But then I asked the question that changed her mood: “How’s your cash?”  She frowned, and admitted that “We don’t have much left, even after all that hard work.”

It’s one of those “Elephants in the Room” that plagues many businesses.  We define an “Elephant in the Room” as a tough business problem that a leadership team would rather not admit exists, or has a very hard time facing head on.  We see it all the time with companies we know.  They make tremendous progress in improving their business results by growing revenue, controlling costs, and bringing the business to profitability, but they still have little cash left to invest in growth – cash they would love to use for the development of new products or services, for marketing to attract new customers, and to reward their people for great work.

How does it happen?  Sometimes business owners don’t focus on their cash position with the same intensity that they bring to sales and product, or service, delivery.  Sometimes they choose to spend more than they should on a new initiative – one that they really cannot afford.  Often, they don’t stop to forecast the cash their business will need to pay their employees and their regular bills.  Simply put, they take their eye off cash and ignore the looming “Elephant” – a coming cash crunch that can starve their business.

What can you do if this is a problem for you?  Make cash your number one metric in the business.  Measure it every week, forecast your cash needs monthly—using a rolling 3-6 month forecast, and admit it when you really don’t have the cash you need to take on a new project, or hire a new member of your team.  When you are ready to spend some cash to grow, force yourself to make a conservative evaluation of the return that cash investment will bring.  Then, cut that anticipated return in half.  If it still looks like an attractive investment, spend the money.  If it does not, don’t.

Focusing on cash every day is an essential tool in improving your execution as a business leader.  Doing so will help you herd that “Elephant in the Room”—The Cash Crunch—out of your business.