Having trouble making ends meet? Are you just scraping by on a daily basis? In your heart, do you fear for the future of your business? If this sounds like you, WAKE UP and smell the cash! It’s possible to turn your cash-strapped business into a money machine if you work smarter, starting today.

First, be honest with yourself. How well do you understand the economics of your business? Many entrepreneurs focus on the top and bottom lines and think everything’s coming up roses if those trends are going in the right direction. But do you really know how much cash you have today, let alone how much you’ll have next week or next month?

To pump life into your anemic business, you must get a grip on the ins and outs of cash flow and make managing it your #1 priority. Start by creating daily cash flow projections for the next two weeks, weekly projections for the next two months, and monthly projections for the next 12 months. Break your cash flow problem into little
pieces, figure out where the deficits are, and then systematically go through the projections, step by step, to find areas to improve it.

With cash flow projections in hand, the next step is to find more working capital. If your current banking relationship is on shaky ground, a 90-day note is probably out of the question. However, there are many other options from various financing companies.

One is an asset-based line of credit, whereby you have an agreement with a financing company for a loan up to a specified committed amount. You will be required to provide collateral (usually short-term current assets) and the lender will charge an interest rate that fluctuates around the prime rate and a commitment fee of 1 to 3 percent.

Factoring is another option that will generate immediate cash. It is an arrangement where you sell your accounts receivable to a lender at a discounted rate and without recourse to your company. You will receive cash immediately, but the discount will range anywhere from 2 to 15 percent. For this reason, factoring is helpful for
businesses with short-term cash needs, but it is not a long-term solution.

If your business is capital-intensive with large investments in equipment, another option may be a sale / lease-back arrangement where you sell the equipment to a leasing company that then leases it back to you for a monthly rental fee. Your new monthly fee should be a smaller amount than what you were paying to finance an outright purchase of the equipment.

Now a word of caution … many entrepreneurs (known to be eternal optimists as a group) find themselves in heavy debt situations because they believe they can sell their way out. "If I can get a bank loan to do this project," they reason, "but find that I don’t have the free funds flow to support debt payments, I can always sell more product to make up the difference." But the fact is that they could be exacerbating the problem and turning their business upside down because they didn’t pay attention to cash flow.

Next, look at ways to grow revenue. Are there any features that can be added inexpensively to your products that will allow increased prices? Can you charge for service calls? Bundle products and services into "new" products? Sell extended warranties or service contracts?

The most immediate way to raise revenues is to increase prices, if the market will bear it. For example, if unit prices are $500 and you sell 20,000 units a year, annual revenues are $10 million. At a gross profit margin of 50 percent, the company has $5 million in gross profit. After taking out $4.5 million in operating expenses, the
company has an annual net income of $500,000.

If you increase unit prices 5 percent and you still sell 20,000 units a year, annual revenues are now at $10.5 million. At the same gross profit margin levels and operating expense levels, the company now has an annual net income of $750,000. This may be a simple example, but it illustrates a quick and easy way to generate more cash.

While you are focusing on the top line, don’t take your eyes off gross profit margins. Find out where your value creators and value destroyers are by evaluating margins by product category and by customer. Are you making sales that aren’t making any profit?

One company that we recently counseled found their customers fell into a typical 80/20 rule with only 20 percent of their customers generating 80 percent of their revenues. So, they made the difficult decision to price away those customers who were not contributing to profits and focused their resources on the remaining 20 percent. Today, this company is growing 20 percent each year with 15 percent profit.

Next, examine what is going into your cost of goods sold and look for areas to squeeze out cash. Can your labor force be more productive? Are you negotiating with vendors to get the best prices on your materials?

Are you wasting cash in excess inventory? Manufacturing companies should use just-in-time (JIT) inventory management (purchasing manufacturing materials just before you need it for production) to run their operations efficiently. Also make sure your enterprise resource planning (ERP) systems tying together sales, accounting, and manufacturing, are talking well to each other, and get rid of surplus, obsolete, or impaired inventory.

Can you turn up inventory turns? If you turn inventory four times a year, you have three months worth of materials (cash) sitting on the shelf generating no return. But by turning inventory six times a year, you’ve reduced that to two months worth!

The next area to put under the management microscope is your expense lines, where you can do some cash addition by subtraction. A dollar of revenue may create 10 cents of net income, but a dollar of eliminated expense creates a dollar of net income.

Examine each general ledger line item for take-outs of all nonessential items. Don’t do this alone; ask managers and employees for ideas. Get rid of subscriptions and rented plants. Cut back on travel and entertainment expenses. Evaluate marketing and product development programs. Reduce FedEx charges, extra phone lines, and other non-essential services. Assess the number of employees in the company and whether you are getting value from every position. Be ruthless. Be creative. And be innovative to find ways to operate more efficiently.

If your business is in real dire straits, cut back on employee benefits, implement a hiring freeze, and move to compensation with bonuses or company stock instead of salary increases. If you explain to your employees that this is a short-term situation necessary to save the company --- and their jobs --- in the long-term, most will go along with you.

Now is not the time to launch a new marketing campaign, start a major research and development project, or hire a direct sales force. Learn to make due with what you’ve got until your business has stabilized.

Another hidden cash drain can be interest expense. Talk to your bank about working with you on a short-term restructuring plan until you can get more cash flowing into your business. They may agree to lower your monthly payments or even let you pay only interest for a while.

Finally, get more aggressive in managing your balance sheet; focus on improving receivables collections and stretching out payables. Get as many customers as possible to pay within 30 days. Evaluate each outstanding invoice, and assign someone to contact customers 60 to 90 days overdue. This person should have a customer-service attitude, yet be firm and able to get a committed payment date from overdue customers.

To avoid billing disputes, be sure your invoices are easy to understand with terms clearly spelled out. You may want to even consider a tiered program that offers a 5- to 10-percent discount for early payment.

On the flip side of the cash management coin, hold on to your cash as long as possible when it comes to paying bills. Renegotiate terms with vendors for 45- to 60-day (or even 90-day) terms. You won’t be able to do this with everyone without damaging relationships or incurring late penalties, but the theory is that if you can pay your bills in 90 days and collect receivables in 30 days, you will generate two months of operating cash.

It’s impossible to discuss every aspect of managing a cash-poor company in this article, but it is possible to leave you with this guiding principle: "Cash is the Lubrication of Business!" Focus on keeping more of what you have and creating more of it. If you are able to do that, you can turn your cash-anemic company into a cash-flush
company again.