“If I had to run a company on three measures, those measures would be customer satisfaction, employee satisfaction, and cash flow.”
—Jack Welch, Former CEO of General Electric


If you advise small to mid-sized business (SMB) owners, you have probably noticed that there’s a difference between how they think about their cash flow versus how you think about their cash flow. SMB owners typically consider cash flow more from a short-term perspective. They thus tend to look to short-term fixes as a solution to what is actually a long-term problem. For example, if they are short on payroll, they come up with an emergency fix like trying to collect faster or trying to borrow money. 

In many cases, the SMB owner is too close to the situation to take a step back and reconsider how to look at and manage cash flow differently. Their business is their baby. Perhaps they started it themselves and grew it to what it is today. Or maybe they inherited it from a family member, so they have nostalgia connected to it. Either way, it often isn’t easy for them to view their business differently or in a new way when it comes to any business issue, including cash flow challenges. 

Doing away with cash flow band-aids

A good advisor can help their SMB clients step back and take a more objective, holistic look at their cash situation, and offer ideas on solutions. Here are some areas an advisor should consider when assessing their SMB client’s cash flow challenges.

1) Take a hard look at their cash management processes. This could include the client’s invoicing and receivables collection methodologies, their payables management, frequency at which they buy inventory, and how often they issue payroll. An advisor’s job is to help the SMB owner reconsider all of their various options. Perhaps they would benefit from segmenting their customers, for example, and setting payment policies accordingly.

3) Look at their accounting apparatus. Running a small business is hard work, and many SMB owners wear multiple hats. It could be that the owner simply has too much on their plate to effectively manage their cash flow. Or perhaps they are using inefficient methods to maintain their accounts.

One simple way that SMB owners can improve their short-term cash flow is by purchasing the right tools for their situation. For example, fintech software solutions can help small businesses address these cash management processes automatically, instead of having to do them manually.

4) Reevaluate how the business is capitalized. A good advisor’s job to ask the SMB owner if their business is capitalized adequately for the amount of growth it has or expects. For example, the business may want to take on a permanent injection of capital. Maybe they want to liquidate assets they don’t need anymore, like machinery or computers, or maybe they want to convert some debt to equity.

5) Consider the tradeoff of growth vs. profits. Is the SMB owner trying to grow too quickly? As an advisor, listening to and learning about your client’s tradeoff between growth and profit could be a good way to help an SMB owner address their short-term cash flow problems.

While not technically a small business, WeWork is a timely example of this quandary of sacrificing growth for profits, which may hurt it in long run. 

6) Check out their forecast. If they don’t already have a rolling 12-month forecast, you can help your SMB client pull together this important cash flow projection. They can fill in the cash-on-hand, projected numbers for their busy season, and when numerous payables may come due at the same time. You can offer information on both local economic trends and industry-specific trends that may impact their business down the road. This information is easy to pull from Vertical IQ.

Dollars and sense

As an advisor to SMB owners, an important part of your role is to help your clients keep their eye on longer-term goals. And a big contributor to a successful future for an SMB is having solid cash flow. But too often, SMB owners lose the forest for the trees. They are so focused on today’s problems that they forget to look at the cash management issues coming down the pike.

Advisors have the power to help small businesses refocus on the future by analyzing their cash flow challenges and offering solutions. The key, however, is to ensure you provide suggestions in a constructive, unoffensive way. There’s an art to delivering this type of feedback in a humble manner! But by providing guidance on long-term cash flow solutions to your SMB clients, you are giving them a monetary gift that will keep on giving!

>> Start exploring local economic data and industry trends that could impact your SMB clients’ cash flow. Visit https://verticaliq.com/ to get started for free today!