Feeling a cash pinch this holiday? Many business owners feel the same pressure. Our friends at Revitalization Partners help companies make effective business decisions. This blog is from their newsletter it contains insight that may be useful to you or your business during this holiday season and moving forward into 2015.

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Small and mid-sized companies live and die based on cash. That’s why one of the first things a business advisor does is to make certain there is an accurate cash flow forecast and that the company is managed to that forecast.
Operational issues can devour a company’s cash, whether they based on rapid growth, that requires more people and inventory, or a market decline. Without adequate access to outside capital, a financial hemorrhage can escalate to a liquidity crisis, when no one gets paid. At such a time, company leaders must relentlessly focus on only one thing: finding cash and holding on to it. Everything else pales by comparison, growth, profits, everything.
When startups run out of money, they often solve the problem with credit cards, or if they are venture backed, with a quick infusion of venture capital. But mid-sized companies typically need millions of dollars to survive. If they don’t find or receive it, employees and their families suffer, as does a larger ecosystem of customers and suppliers. Large companies rarely face this company-killer, as most of them maintain large cash reserves, have access to the financial market and possess the financial discipline to react long before a crash.
Mid-sized and smaller companies need to be far more cash-conscious, even downright cheap, when there is a possibility of a market decline or operational issues due to overly rapid growth.
The major cash uses in a mid-sized company are people, inventory, and sales costs. Revitalization Partners specializes in helping companies develop metrics to measure operational efficiency involving such aspects as staffing, industry inventory turnover, acquisition costs, and profit per customer. There are a number of effective steps a company can take before a cash crunch occurs to help prevent an emergency.
But what if your cash forecast shows that your needs exceed your borrowing capability? Then it’s time to consider taking in additional equity. But, be very careful when raising equity for a privately held company. Make sure payback and return expectations of your new investors are in line with yours.
As a rule, a private equity firm will look at holding a portfolio company for three to five years and a venture capital fund up to ten. Of course, there are numbers of exceptions. But make sure that the timeframe and returns match the projected ability of your company or things can get ugly. If the match isn’t right, don’t take the money and keep looking.
If you’re having trouble dealing with the situation, get outside help. The thing to remember is that there are lenders and investors out there for almost every company. So the most important thing in a cash crunch is: Don’t panic!