My 82 year old doctor, Monica, tells me that a cause of death is not old age. Therefore on a death certificate the reason for death cannot be recorded simply as ‘old age’. So what is the cause of death if one departs this world in one’s sleep which is what happened to my late father? The doctor simply recorded ‘fatigue’ as the cause, which I found pretty strange at the time because I am often fatigued but do not have any immediate plans to pass on. When Monica and I dis
scussed this (and I cannot recall why), I told her that my father used to say that everyone dies of the same thing – shortage of breath.
Monica disagreed, and while I am not a doctor, I think my father had a point. To mention the bleeding obvious, many if not most, small and medium retail businesses fail due to cash flow issues.
They simply don’t have the breath (cash), and therefore the shortage of breath/cash is what kills them. We are not business brokers, but in view of our network of retail CEOs and high wealth individuals and families, we are occasionally asked to assist with the sale of a retail business. The first question we ask is “how long have you got?”
The answer usually varies from two weeks to six weeks. In good times you may find a buyer for a business within six months, but invariably and certainly in these times, it is likely to take 12 months or longer.
To sell a business in two or six weeks is ludicrous and is usually driven by desperate cash flow issues. Even if one does find a buyer, the seller is likely to have to sell at a fire sale price. So if cash is as vital for businesses to live as breath is for us, why is it that so many companies fail?
One answer has to be liquidity, and often this is due to bad or no cash flow planning.
If you are a small/medium size retailer, do you have a cash flow plan? If so, how often is it updated? How often do you look at it? And if you don’t have one, why not? Planning your cash flow is not difficult.
A year eight student with a basic knowledge of arithmetic (not maths) could prepare one on the back of a matchbox. It is that easy. But getting back to my doctor, Monica, she always wants to do tests early.
I complain as do most men, but she insists that if there is a problem, the sooner she knows about it the better.
I wonder if the same mentality applies to cash flow. You don’t really want to know the bad news so don’t bother to find out.
The only problem is that the issue doesn’t go away on its own. You need to take some medicine. And you can’t take medicine until you have a good grip on the malaise.
Stuart Bennie is a retail consultant at Impact Retailing www.impactretailing.com.au and can be contacted at stuart@impactretailing.com.au or 0414 631 702
