The Phrase You Should Never, Ever Utter
Kat / Vertical Axion
Cash is a little tight right now.
There is a story of a company, nameless of course, that had made a complete mess of their accounting department – on purpose. The CEO of the company believed that his company didn’t have enough money because they hadn’t been collecting on invoices like they should. When they brought an expert in to figure out, he discovered an entirely different story. In fact, the accounting department was collecting as fast as they could, and they still could not keep up with the bills. They had a stack of recent invoices that they didn’t enter in for at least two weeks because they knew those bills couldn’t be paid. Out of the bills that had already been entered into the system, only a third – yes, a third – of them could be paid that very day. All of them were already past due.
Cash was a little more than “tight” – cash just didn’t exist.
This may sound like a crazy story, and you may be sighing in relief if this isn’t the state of your company. Still, this kind of thing doesn’t happen overnight, or over a month, or even over six months. It happens slowly, like debt buildup usually does, and it’s always sneaky. As soon as your company starts to have cash flow problems, that’s the point that could lead to a similar horror story at your own company.
As CEO (or CFO, as the case may be), it’s your job to deal with this problem as fast as possible. Start with looking at all of the company’s past records. How many days of expenses is usually sitting in the accounts payable? Where did it all go wrong, and when did you start living day to day instead?
Once you figure that out, look into the future. Figure out the predicted cash flow for each month, and how much cash flow would be needed to bring the accounts payable back down to manageable level. Work with your vendors, figure out the total amount you owe everyone, and figure out how long and how much it will take you to get back on track.