As an entrepreneur, running out of cash is not an unusual problem. When you have cash flow problems, the first question you need to ask yourself is, “why did I run out of cash?” The problem of running out of cash can be divided into two broad groups namely:

1. Marketing Problems
2. Bad Financial Management

Marketing problem

Marketing problems are problems tied around your customers. Marketing problems show up in two ways

1. Problems with getting customers (customer acquisition): Sometimes cash problems arises because you don’t have enough customers bringing in revenue. If this is your problem you need to look at your marketing system for what you can improve to make customers aware of you. You might need to remind current customers to refer you to others. Also consider running a marketing campaign or hosting an event, etc.

    

   One thing you need to know about customer acquisition is there is usually a lag time for most businesses. Which means just because you advertise does not mean you are going to have hundred new customers running at your door. Acquiring loyal customers takes time and rushing the process can actually have the opposite effect. This is why you have to consistently work on building your sales pipeline. You should always be generating leads due to the lag time between when a customer becomes a lead and a customer. Some businesses lend themselves to shorter lag times but regardless you need a consistent customer acquisition system.

   On the other hand, if your cash problems are so dire that you cannot wait for long term customer relationship, you can bring in new customers by having irresistible sales. Customers who come to your sales event might have no desire in becoming your long term loyal customer but at least they could help you meet a short term cash flow need. Do not let running sales become a habit to generate quick cash. Sales are only good when they are a part of a long term marketing strategy. Sales ran too often could cause severe damage to your business.

    

2. Problems with retaining customers (customer retention): Customer retention means your problem is not getting the customers but keeping them. This could be due to a number of factors, but one I will like to talk about is having a poor operational system.

    

   Poor operational systems: Anyone who has lived long enough has experienced doing business with a company they swore never to come back to. This bad experience is normally due to a poor operational system. Sometimes cash flow problems arises from customers getting slammed by your poor procedures whenever they do business with you. They find your processes too cumbersome and more over the direct contact from your business is not sympathetic to their needs. If your problem is customer retention, first look at your operational system to see if everything is running efficiently from the customer’s perspective. Some questions to ask are:
   

• Are we currently over capacity?
• Do I need to hire new staff to take care of the overflow?
• Would I want to be a customer of my own business?
• What lessons can I learn from my successful competitors?
• Do I have an operational system that standardizes customer experience?

Poor processes are quite lethal to your cash flow as bad word travels fast. Not only do your current customers not come back, they deter potential customers from doing business with you.

Bad financial management

Bad financial management is one of the biggest killers of business. Sometimes entrepreneurs go into business because they have a great idea but have no clue how to manage money. What is worse, they refuse to get help until the business becomes very bad. There are couple of things a business owner can do to keep from getting into dire cash flow circumstances. In this article I only focus on three bad financial management practices and how they cause problems with cash flow. These three issues are:

1. Comingling business and personal funds: comingling business and personal funds is one of the things I see entrepreneurs do. The problem with this is business owners do not know where business income ends and personal income starts. You should have a system of paying yourself regardless of what business structure you have. Paying yourself lets you take the money you need for your personal expenses while the business still has money to re-invest.
2. Poor collection practices: Let customers know what your payment terms are upfront. If you are having collection problems with a particular customer then you should change the policy so they pay you ahead of time. Letting customers go a long time without paying could be detrimental to your business.
3. Charging too high or too low for your products: Your price should match the amount your target market is willing to pay. You should make it your job to study your target market. Using high end prices for a low end market and vice versa could have adverse consequences. For instance, charging lower than your target market expects might cause them to think your product or service is low quality and charging too high will send them to a competitor. Pricing is not an exact science and you might have to experiment a bit to find that right price. Of course, price should be set at an amount that makes your profitable.

In summary, when faced with a cash flow hurdle in your business,start by asking yourself why and then work your way back to a solution. Do not respond to a cash shortage in panic mode as you could find yourself in a worse situation. For example, running a sale because you need an immediate cash injection is a mistake if your problem is poor operational processes. The unpreparedness of the business could really turn customers off. Most of all, listen to your customers because they are the ones who inevitably determine if your business is relevant.