Understanding and Improving Cash Flow in Your Small Business

One of the most common points of anxiety in SMB’s is cash flow. This issue spans across construction, tool shops, casual dining, service businesses, franchise models, etc. This issue is not specific to an industry or any one type of operator personality. If one common dynamic had to be identified it is this: many SMB’s owners have built a business without a background in finance, costing, planned growth, pricing, or experience in monitoring overhead.

Start With Your Costs

The first order of business in improving cash flow is objectively understanding your cost. A business needs to firmly understand the hard dollar cost required to go to market with their given good or service. Clearly understanding your cost basis can shed tremendous light on why cash flow is tight. If cost is understood and “in line” it leads a business down one path, if cost is understood and “high” it would take a business down an alternative path. Too many businesses think their cash flow is a revenue (top line) issue when the first place to look is at expenditures.

Ask the Right Questions

Once cost is understood, the conversation becomes dynamic and situational. Next, it’s time to ask questions about business models, large expenses, and pricing. Questions to ask at this stage include: “How does my business make the highest profits?” “Have there been large expenses in a recent period that strained cash?” or, quite commonly, “I am busy and sales aren’t an issue, so where is the cash flow?”

Two Real-World Cash Flow Scenarios

Recently Dominion has worked with two common cash flow scenarios.

Scaling a Construction Business Without Straining the Bank

A construction business is ready to invest and scale. We worked to understand the costs with the new level of overhead and services associated with the new growth model. The aim was to get ahead of the increased cost, to avoid being sold out while having a starved bank account.

A Healthy Franchise With a Short-Term Cash Crunch

A well-run franchise called, concerned about cash flow. The order book was strong, and the business was running well. We quickly verified the issue was likely a short-term, one-time large expense. The owner generated a report of large expenses in the last 45 days and the assumption was verified. The franchise did not have a business problem but a literal short-term cash issue because of investments made.

Need Support?

Contact Dominion Consulting today to improve your cash flow.