Financial Problems are Multi-Level

So you find your company’s finances tight and you think you know the reason, but do you? Maybe you do, but maybe you don’t.

A Quick Example

Imagine this financial tightness is experienced primarily through always having to battle to have sufficient cash. You have identified the cash shortage as your main issue; and on the surface that may well be true. But, upon closer examination you might find that the cash crisis is merely a symptom. This kind of issue is usually multi-level, involving other things that are producing the symptom(s).

Some Examples

Generally, financial problems, including tight cash positions, are more than they at first appear, actually originating on another level. If cash is short, do you know why? Do you have excessive levels of inventory? (See 3 Low Cost Sources of Cash – Part 1). Are accounts receivable a problem area? (See 3 Low Cost Sources of Cash – Part 2). These are just a couple of areas that commonly create cash problems. But, even if one or even both are creating the cash problem, don’t stop there. Try to get to the bottom of why accounts receivable has become an issue. Identify the customers that are routinely paying late and make them a focus of your efforts. Evaluate your credit polices. Are you making your terms clear to new customers and then following up in the early stages of doing business with them?

Likewise, examine your inventory and identify the items that have excessive levels. Try to see what caused this. Were guidelines in place to determine appropriate levels to order? Is there a routine for identifying items that are slow moving and establishing ways to sell them before they become obsolete?

It’s Like Life in General

Ever experienced a major conflict with someone you’ve known for years and with whom you have generally enjoyed a good relationship. Why is there suddenly a problem? Although it could occur suddenly, often upon careful examination we will realize that the problem developed over a period of time. There may have been some comment we or they made that should have been addressed at the time but was allowed to pass. Then, as time marched on, additional little things happened. Suddenly, something occurs that is the tipping point and the relationship becomes strained. We all know we can minimize this from taking place if we do frequent relationship management where we check in on the relationship. That way we keep a short list of unresolved grievances and clear the air.

Just as relationship problems don’t occur overnight, financial problems generally don’t either, and again like relationships they are multi-level and require ongoing maintenance.

Are you monitoring the issues that will impact your finances or just waiting until the symptoms make you face a crisis?

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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