Cash Shortages

Cash shortages have caused many small businesses to go into financial ruin. This is a result of entrepreneurs not fully understanding the concepts of cash management. Every small company is vulnerable to cash management issues when they are in the beginning stages of life. My proposed small business will be no different. The greatest cash management problems I expect to face in my business involves collecting (accounts receivable) and disbursing.
My proposed small business is a crisis management firm. The company will be primarily service based. This means that most of the cash that is brought in will be dependent on clients paying for the services we offer. Launching this type of company can be a bit of a challenge. Crisis management firms obtain customers based on public awareness and references that help them build reputations within the industry. As a new company, this type of promotion may be difficult to acquire if connections are not established prior to starting the business. Due to this lack of established dependability and familiarity, prospective clients may seek counsel from firms that have settled into the industry for their specific issues and needs. To combat this problem, I’ll probably have to sell my services under some form of credit. My proposed credit policy specifies that the client will pay a small portion (10%) of the service cost prior to any work that is performed. The remaining cost will be collected once services are completed. The factor of this dynamic of cash management that would cause the most harm to my cash flow is the time it will take my clients to pay on their accounts. I could have a very effective credit policy in place, but slow-paying clients and those who don’t pay at all can still pose a threat to the firm. A high volume of cash will be utilized on the services provided to clients. If certain clients are not paying their remaining balance, it leads to more cash going out than coming in. This struggle with collecting...