Every business needs to master cash flow

Kerry Schultz

A very iconic small businesses in Melbourne went broke late last year – Chris and Marie’s Plant Farms.

Given their popularity and reputation you would be asking the same question as I – how did this happen?

Why did they go broke?

Chris wrote a personal message to his customers in September 2014. He said and I quote “the Australian Taxation Office was unwilling to give me an extension. Instead they called in the liquidators, our doors were closed and my staff locked out of my Campbellfield nursery on Thursday the 14th of August without notice” The Australian Tax Office is the number one organisation that forces tax payers into bankruptcy as a result of overdue debts not being paid.

Over many years, their creative advertising campaigns on Radio, TV and Print were memorable and original. Plenty of humour and cheeky one liners, along with some super deals to keep us paying attention – and to keep them staying front of mind.

Chris appeared to have excellent industry knowledge and skills regarding his own profession, so why did they fail?

So what’s essential then?

I have not seen any business owners that know it all when first starting out. Especially in regards to what essential skills and knowledge they must acquire in order to be successful, and avoid business failure. Example; if a painter spends his/her life painting but learns no business skills then when it’s time to pay the bills (including tax) it can be a real cash flow disaster.

Cash flow & marketing

We already know that Chris was a good Marketer who attracted customers from far and wide, yet he still went broke despite this obvious strength.

When it comes to business failure statistics, Cash Flow most often the primary reason businesses go broke. They simply run out of cash. Why does this happen?

In small business, Financial Literacy is a “must have” rather than a “nice to have”. There is no barrier to starting a business, yet >90% of small businesses don’t make it to their 11th anniversary because they have little or no financial literacy, and spend their entire business lives trading right on the cash flow cliff edge. As a result it only takes a short period of bad trading or a downturn in their local economy and it’s over.

Time management

One of the biggest killers in small business is time management. Running a small business involves so many components that if you are good with time management it’s going to get the better of you. We all understand the notion of working on, rather than in, our businesses – however putting the theory into practice is not as easy as it sounds.

Regardless of what industry you’re in managing the day-to-day activities and priorities is essential. Managing your time so that you can re-order priorities to stay on top of everything and keep the business wheels spinning. This is what every small business needs to master and without this cash flow inevitably dry up.