Biz tip of the week: Preserve cash flow with cost strategies

2013-04-29T00:00:00Z Biz tip of the week: Preserve cash flow with cost strategiesRalph Hershberger Special To The Arizona Daily Star Arizona Daily Star

Most SCORE clients have a good idea of their intended product or service, have performed an elementary competitive analysis and have thought about finances.

A major omission in their plans is a realistic cash-flow analysis. Simply put, cash flow is the timing difference between cash spent and cash received. Most startups fail because they run out of cash.

Successful businesses limit their investment. In other words, they minimize cash expenditures and are constantly looking to reduce expenses. Think about how to do everything less expensively.

In the past 30 years, business has changed so much that many former business precepts are no longer valid. Consider the following investment and spending choices:

• Avoid investments in hard assets. If you need space, start in your garage or a local business incubator. If you need more space, rent before buy. You can always buy later after the business is successful. One SCORE client used commercial kitchens instead of buying baking equipment and renting production space.

• Buy (or lease) used equipment and furnishings. Southern Arizona is blessed with many secondhand stores that sell basic office furnishings. The Internet offers a broader marketplace for hard-to-find items. One caveat is equipment that generates a productivity or service advantage. If you are in a technically driven business, select the best technology and shop aggressively. Just avoid all the bells and whistles.

• Limit staff hires. Most office services can be out-sourced. Consider part-time employees. There is a large working population (retirees, students) that does not want to work a 40-hour workweek.

• Shop everything. Merchant card processing, janitorial services, marketing collateral printing, insurance, copier supplies and payroll services are prime candidates. Service businesses have finally recognized the small business market and are configured to serve it. The savings can be a source for next year's raises.

The payoff is that you will have the cash to handle emergencies, slow-paying customers and to capitalize on opportunities. And to survive.

Ralph Hershberger is president of SCORE Southern Arizona, a nonprofit group that offers free small-business counseling and mentoring by appointment at several locations. For more information, go to www.southernarizona.score.org, send email to mentoring@scoresouthernaz.org or call 505-3636.

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