Cash Flow

“Time Is On My Side,” is the title of one of the classic rock ’n’ roll songs performed by Mick Jagger and the legendary English band, The Rolling Stones.  

This bold statement works in a song, but for small businesses – not so much. The reason is because of the complicated dynamic between our most limited resource, time, and three of our most important business factors, expenses, sales, and cash.

In the marketplace, there are actually three different clocks at work that every business uses: one for operating expenses, one for sales, and one for cash. Let’s take a look at how these three clocks impact your small business.

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Congratulations on making that nice sale. You’ve worked hard to get customers to come and buy your stuff. Success feels good, doesn’t it?

Well, sorry about the cold water treatment, but what if I said you can succeed yourself right out of business? Retailers selling to consumers get paid at the point-of-sale. But if you have business customers, they expect an open account relationship where they pay you in 30 days – sometimes. And there’s the rub.

Let’s do some easy, but critical math: When you extend credit to customers, you have to fund virtually the entire amount of the sale until the day you get paid. Everything but net profit, which if you’re lucky is small single digits.

Here’s another way to think of it: The moment you deliver to a customer on credit, you haven’t so much made a sale, as a loan. And any banker will tell you that two out of three things that can happen with a loan are bad: Besides being paid later than agreed, sometimes it isn’t paid at all. For an under-capitalized small business – which is redundant – such possibilities are perilous.

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