Welcome to the last video in the finance segment. We've been discussing how your business is financed so that we can get a handle on whether or not it's recession resistant. To understand this we need to know if you have profit from operations and how much money you owe your creditors. But after you understand these answers, what's next?

In this video we're going to talk about number five.
How big are your Cash and Receivables balances?

If you're low on cash, is that because you're behind on your receivables? Remember that we looked at your profit margin earlier? Maybe you have a cash problem because you have a receivables problem or a profit problem.

If you've borrowed money from a bank you've likely had to show them your receivables aging report. Just like them I want to see if they are too big, too small, or just right.

Running a business hand to mouth is no fun at all. Having a bunch of slow paying clients is no good. If you're low on cash and your clients pay slow then they are holding your money and you're financing their growth.

If your contracts are set to Net Thirty terms then your clients should be living up to those terms. If they aren't this leads to several other questions.

Why are they paying slow? Is their business in trouble? Or maybe they're just taking advantage of you because they're a big company and they feel like you need them more than they need you. Answer to these questions take us back to the discussion we were having earlier about the risk in your client base.

After we answer those questions, we've got a few more. I do one last piece of math to measure how secure your business is. I convert the available credit, the cash balance, and the accounts receivable into a number that tells me how long the business can run if it didn’t sell another product or day of service.

If you want your business to be recession resistant then your cash,
receivables, and available credit should add up to six months of operating expenses.

How many months can your business run? If your measure of a good month is that you made payroll then I know you're stressed out and need to fix some things. I hope this video series was helpful for you in identifying the things you need to focus on in your business.

For more free small business advice and resources check out my site at: https://www.askphilipwilliams.com