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Oct 18Tim McLellan

Know Any Companies That Ran Out of Cash?

Oct 18Tim McLellan

Know Any Companies That Ran Out of Cash?

 AIG Insurance

General Motors

Citigroup

Chrysler

Bank of America

XYZ Homebuilders

ABC Industries

Joe’s Restaurant

BP Oil – pending

What do all of the above companies have in common?  All of the above companies ran out of cash.  Whether you are a multi billion international company, or a Mom and Pop local company, you are still subject to a very simple business rule.  If you are out of cash, you are out of business.

Some companies need $20 million a week to cover payroll, while others need $20,000.  It doesn’t matter if you own a building worth millions or pay $2,000 a month in rent.  It doesn’t matter how much you have in Retained Earnings.  If you run out of cash, you are out of business.

So what can you do if you run out of cash?

  • Ask the government for a bail out
  • Quit paying your loans as agreed
  • Don’t remit payroll withholding taxes
  • Don’t remit sales taxes collected

None of the above are good alternatives.  Most companies use the internet to check their bank balances at least daily, sometimes more.  This has made some business owners feel more in control of their cash.  But there really is no substitute for preparing and regularly updating a 90 day cash flow plan. 

It’s much easier to look 60 -90 days and see an anticipated shortfall, than to sit in your office on Wednesday figuring out how to make Friday’s payroll.  With 60 – 90 days notice you have plenty of alternatives – push hard on some A/R collections, liquidate some old slow moving inventory, sell off some old equipment, ask key suppliers for extended terms or even apply for a loan.

So if you, or anyone you know, are losing sleep over cash flow issues please contact me.

B2B CFO®

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