Death Valleys You Might Face as a SME and How to Protect Yourself from Them
As an SME, the most important factor that distinguishes your business from larger enterprises, and perhaps the only key factor, is your capacity to generate free cash flow and the liquidity level of your cash pool.
As you can understand from this introduction, the most dangerous abyss that an SME can fall into is lack of cash.
There are 9 factors that can drive your SME-scale business into a cashless situation:
A continuous decline in your sales,
Inefficiencies in your costs and expenses, leading to unnecessary (i.e., non-sales generating) expenditures that drain your cash flow in the medium and long term,
A lack of innovation; unless you launch new products, you can be certain that your sales will decrease over time. Target audiences don’t like the old and repetitive; they demand the new and the different.
Persisting in working with customers who don’t bring you profits,
Not removing unprofitable products and brands from your portfolio,
Not having a tax strategy,
Making careless expenditures that won’t turn into sales just because they exist,
Not managing your balance sheet and working capital properly,
Failing to prepare your company for life after you, and continuing to do everything yourself. This will paralyze your company the moment you step away, either willingly or unwillingly.
The first 8 of these factors are things that you can tackle with a good team, strategy, and execution while you’re still running the business.
However, the 9th factor requires you to break free from the "it’s fine as long as I’m here" mindset and consciously and strategically plan your exit.
Your company is like your child. If you take good care of it and make sure it can generate cash even without you, it will provide for you throughout your life, boost your reputation, and maximize the joy you get from life.
However, if you don’t take care of it and grow it in a way that’s dependent on you, it will quickly spiral into chaos the moment you’re absent. It will be sucked into the vacuum created by the leadership void and will disappear in no time.
To prevent your company – and consequently, yourself – from running out of cash, ensure that you’ve established an operational model aimed at maximizing your company’s free cash flow as long as you're actively involved.
While building this model, also teach your company to generate cash without you, so that even on the days you’re not at work, it will continue to produce the cash you expect and support your living standards.
The only way to carry your business into the future you desire is to design it and bring your design to life.
To your success and prosperity in business,
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Business Coach for CASH
Your Business Coaching Team