Seeing red on your balance sheet can be an uncomfortable position, and one that's put many a business out of business. For those ready to take control of their finances and make the shift from negative to positive cash flow, you're in luck. I reached out to two business owners who have done just that.
Here, they share what put them in the red, how they got back into the black and their ongoing strategies for managing their business and books to ensure that the cash stays flowing.
As both a brick-and-mortar and online retailer for women's fashion, Lubbock, Texas-based T.C. Elli's hit hard times along with the rest of the U.S. back in 2009.
"The recession succeeding the housing crisis had a massive impact on our customer base," says founder and CEO Tahnee Elliott. "Foot traffic in our flagship store experienced a massive decline and extremely high price points—this was the era of $300 denim—resulted in the worst financial situation we'd seen in 18 years of business."
—Tahnee Elliott, founder and CEO, T.C. Elli
To stay afloat, Elliott absorbed most of the store shifts to keep payroll expenses to a minimum. Elliott and her husband also infused a substantial sum of personal cash into the business until they could figure out what was next.
For Prospect Cleaning Services, a cleaning, maintenance and janitorial company that services New York City's five boroughs and Long Island, the move from positive to negative cash flow came when they lost a major client due to a management change.
"We took a big hit losing that client and on top of that, they took well over a year to pay us, which almost put us out of business," says Ingrid Murray, Prospect's owner.
Like Elliott, Murray also resorted to personal savings to stay afloat during these rough times.
But both owners experienced a turning point that took them from rough to strong enough to tough it out.
The Turning Point
The shift from negative to positive cash flow for Murray's company came when she decided to add a seasonal service to their offerings: snow removal. In addition to adding this new revenue stream, timing was on their side: Prospect won a major government contract worth $900,000.
For Elliott, getting out of the red meant a strategy overhaul.
"We strategically reduced our price points to accommodate the financial hardship our community was living through," says Elliott. "Long gone were the days of high-end luxury; we had to strategically revamp our inventory to accommodate the financial times."
While it took nearly two years for T.C. Elli's to make the journey back to positive cash flow, they did it. And for Elliott, there's no looking back.
"Now, we are extremely conservative with our financial decisions and keep a tidy financial house," she says. (This includes a lean payroll, a long runway for adding new line items and inventory and focusing on superior customer service and a fresh online user experience.)
Best Tips for Positive Cash Flow
It's a full-time job to operate a positive cash flow. Once you're in the black, you can't become complacent.
Let's hear what Elliott and Murray say are their best tips for staying positive year-round and year after year.
- Know your expenses. "You can't manage what you can't see. When you prioritize a well-organized, transparent balance sheet, you effectively reduce the potential for line-item surprises."
- Know your margins. "Small-business owners should know their margins like they know the back of their hand; wise business owners know what everything costs."
- Creating a referral program. "We offer incentives to our current clients for giving referrals."
- Keep employees engaged. "The people who work for you know prospective customers, too."
- Assess your billing system: "Changing my billing system from the end of the month to the beginning had a huge impact on our cash-flow shift."
Other businesses have been where you are—in the red. But now you know it's possible to survive a cash-flow crunch and thrive on the other side.
As you do the work to shift your business into positive cash-flow territory, keep this one piece of advice from Elliott in mind.
"A rising tide lifts all boats, but too many entrepreneurs jump at the first sign of low tide. If they would sit with the temporary discomfort of uncertainty long enough to hunker down, run a lean model, implement creative solutions and know when to ask for help, more businesses would survive hard times. Choosing to be proactive instead of reactive is the difference in going under or coming out the other side."
Read more articles on cash flow.
Photo: Getty Images
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