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The first major sign of trouble on the horizon is poor cash flow. Either the business owner doesn’t have and execute a marketing strategy that works (more on that in a bit) or it is because the people who owe the business owner do not pay their bills on time. Everyone, it seems, is trying to hang onto someone else’s money for some strange reason. One business owner confided to me that a large organization he did business with paid him more than 90 days after he sent the invoice in for approval and payment. In the meantime, he had to pay all of the bills for his company and his family.

The sense of urgency at the large company, apparently, was non-existent. The individuals who open the mail, process the invoices and cut checks aren’t concerned with the “problems” of the small business providing the products and services to their organization. Why should they? An employee of a large company gets a paycheck week in and week out, along with vacations, paid sick days, paid holidays and a lot of fringe benefits. Since they don’t work for a small business, it is unlikely they have ever had to deal with cash flow issues.

The business owner, on the other hand, lives and dies by the daily balance in their company checkbook. That figure determines whether or not they can hire more people, add inventory and improve the selection of goods and services, upgrade their offices and equipment, and serve their customers and clients better.

The Santa Clarita Valley (where I have now lived for 18 years) is home to nearly 11,000 businesses, and the vast majority of them are small. I am not going to recite the numbers, but there is a very good chance that if you are reading this, one of your neighbors is employed by a small business located in your town. You can help that neighbor, you can help your neighborhood, and you can help your city and every one who lives there by simply paying the bills that you owe to small businesses on time. If you can’t pay, then don’t ignore the bill—call the business and make some type of arrangement to take care of the obligation you have created.

If by chance you are someone in a large organization who does business with small organizations, and you have anything at all to do with the check processing system, please take the time this next week to see what can be done to reduce the time it takes to get a check cut to the businesses that provide services and products to your organization. Remember that your neighbor, the small business owner, doesn’t get a paycheck each and every time payroll is cut. They get what is leftover, after everyone else gets paid. In other words, they get paid when the check from your organization arrives in their mailbox. That vital difference may mean keeping the doors open and people on the payroll.

Another small business storm cloud that seems to be crop up as regularly as a summer thunderstorm over the San Gabriels is lack of a marketing strategy. For the life of me, I cannot understand how a business owner can run a business by sitting down and waiting for customers or clients to “find them.” Then analogy would be similar to trying to find a specific sentence on specific page on a specific web site on the Internet, only without a search engine. Yes, you could do it, but it would take a long while. In the meantime, the business will go out of business, the facility covered in dust and cobwebs.

If your business is not where you want it to be in the greatest of all economies, then something is wrong—very wrong—with how you do business. Your marketing, or lack of it, may be the culprit.

Marketing isn’t a science, and it isn’t an art. It’s a blend of both. It is also a set of skills that can and must be learned if one is to have a business that is successful. Learning can be painful but it is also definitely profitable (see last week’s column).

One can learn marketing by reading. There are thousands of books on the subject, and many of them are available for free at your local public library. Start reading today—the library is open on Sundays! While you are there, pick up a video tape on any number of subjects related to getting and keeping customers: sales, marketing, customer service, and so on. You can also pick up audio tapes to listen to when you drive, or during slow times during the business day.

Brian Tracy is a great author with many wonderful books to choose from. His books have been converted into tapes and CDs so there is no excuse not to read or listen. Harvey Mckay has authored many books on the process of gaining and keeping customers. Jay Conrad Levinson has written a series of books on “Guerrilla Marketing” which are inexpensive and timeless in the information that is provided. If you can’t put to use something from these three authors, then you should close up your business and get a job working for someone else!

The one way out of a period of poor cash flow and slow sales is to generate more revenue, from better customers and clients. There are going to be periods of rough weather and turbulence in every business and life. How you choose to deal with those times will determine your ultimate business success. Will you turn on the radar and scan the horizon to avoid bad weather, or will you fly into it without knowing the duration or intensity of the storm? Only you can decide.

The CEO Project has conducted research that suggests that critical to success is selecting the right business and profit model.

An essential part of any successful business model is determining how to maximize cash flow, minimizing risks and balancing the needs of specific clients. The cash flow component of the business model has to be built around the simple concept of “what works best for the company” and not “what works best for the client.”

While managing cash flow and receivables may not seem like the something that fits into the job description of a CEO, it is. Kraig Kramers, while leading Snapper, the lawn care company, required a daily cash report at the start of each day for two reasons. First, he wanted to send a message to every employee that he was watching cash flow and he understood that if he was paying attention to it daily, so would his employees. Second, he understood that cash flow management was so critical to business survival and success that it was truly a CEO level responsibility that could not be relegated, delegated or ignored.

It is the job of the CEO to reduce risk whenever possible, and it begins with the creation and implementation of successful credit/collections policies and procedures.

Many companies believe that what is normal and customary for their industry must be adhered to when it comes to invoicing and collections; otherwise clients will take their business elsewhere. This is simply not true. Failure to pay invoices timely is not a smart business practice; it is the sign of a company that is not well managed. Who wants clients that don’t pay their bills? Who wants to do business with a poorly managed company?

The CEO of every organization needs to be open minded about the various methods and means to more bring cash into the company from clients because it will not only reduce financial risk but will also improve the valuation of the company. The management and improvement of cash flow cannot be after thought; it cannot be done only when a crisis looms.

The most desirable of all cash flow models is that the client pays the total invoice, in advance, before the company incurs time, materials, production and other costs. When this is done, the risk of the client not paying, or delaying payment, is virtually eliminated.

Getting a deposit or retainer in advance is also a good way to reduce risk, but unless the company is clear in communicating to clients when the remaining payment(s) are due and there are consequences of not meeting those deadlines, the company is relying on the goodwill of the client to pay.

Risk occurs when the company has no set policies or procedures regarding credit or collections. Substantially more risk occurs when there are policies and procedures in place and they are not executed.

Key components of reducing risk include determining credit worthiness of clients and assigning credit limits to each one. Credit insurance is available at a relatively low cost to mitigate risk of default or short payments.

But the most important aspect of reducing risk and increasing cash flow is a proactive and systematic approach to collections. This means monitoring credit worthiness of clients on an ongoing basis because the circumstances of clients change. It means educating clients of the company’s policies related to credit and collections. New clients (and perhaps those with changing credit worthiness) need to be called when an invoice is mailed, called again to make sure the invoice has been received and to determine the date that the invoice will be paid. It means following up before the due date of an invoice to make sure that the client intends to pay it when it is due and not later.

Intelligent cash flow management does not mean sending “past due” notices and hoping that the client will pay it immediately. When previous “past due” notices have been ignored, it does not mean sending more notices. It does not mean calling and leaving a message about a past due invoice and hoping that the call will be returned. It means assigning a competent individual or individuals to the critical tasks of credit and collections.

The CEO needs to take an active role in ensuring that the cash flow of the company is protected and positive. This may mean changing the business model; it may mean finding better clients, and moving away from clients that cannot pay their bills within set deadlines. It may mean that company will need to address gaps in policy and in execution. Poor cash flow happens because of poor design, lack of policies, lack of communication with clients and poor or non-exist execution by staff.