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What do you think is the number one thing killing small businesses today? Employee turnover, a broken culture, weak leadership. Those are all real threats. But the thing that takes out more small businesses than anything else is cash flow. If you're not in control of your cash, your business is on life support, whether you know it or not. In this episode, John Felkins breaks down the most common cash flow mistakes and how to fix them before they take you out. Let's get into it.
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Here at Ramsey, we believe businesses should operate at the speed of cash. And if you've got a cash flow problem, that's not an issue you can slap a band aid on. That's something you've got to fix. Now, cash flow isn't just a money issue. It's a leadership issue. If the money's not working, nothing's going to work. And it's a silent killer, because cash flow problems don't hit all at once. They creep in, and before you know it, you're stuck, you're stressed, and you're out of options. So today I want to go over eight cash flow pitfalls to avoid and how to fix them. Number one, getting overextended on the front end. A great example of a company who did this and went bankrupt was Wiseacre Frozen Treats in Maine. And you probably don't know who that is, but they're a perfect example, so hang with me. It started with a solid business idea. They were making organic popsicles that tasted great and came without the refined sweeteners most other companies were using. It seemed promising. They won awards for innovation and got huge distribution deals in major supermarket chains. So where did it go wrong? Well, they bought all of the equipment they needed to fill those distribution orders without the money to back them up. The owner had a handshake from an investor, but they didn't have the cash in the bank. And this, my friends, was 2008, in case you forgot. That's when the bottom fell out of the economy. The investor ended up going back on his promise and there was no way to stay afloat. They went from eight stores to dozens, then hundreds immediately. And they weren't prepared for it. They went bankrupt. And remember, it all started when they overextended themselves. Two, not having an established clientele. If you don't know your target market and know that they will buy your product or service, you won't make money. Also, if you're just throwing darts all over the place, trying to hit as many clients as possible, you'll confuse your target audience and your team. And that will lead to cash flow problems. This reminds me of a time when I asked one of our clients named Brian, what's the purpose of your business? What do you do? And he said, well, we're into the hair care, tire repair, and airport services business. I was like, what? That's way too much. That's no focus. Brian was just trying to make money without thinking about what his exact clients and services were. Then he got focused and he started making a ton of progress and and about a bajillion dollars. Number three, not charging the right price. Also known as undervaluing yourself. I know it's hard to put a price on your product or service, especially for small business owners who care so much for their clients and want to make sure they help as many people as possible. But if you underprice your product or service, you can't grow. And if you can't grow, you're limiting how many people you can help. Think about it this way. If you don't believe your goods or services are valuable, your customers won't either. So charge what you're worth. Number four, treating your business like a hobby. And I know some of your small businesses started as a hobby. That's great. But there's a difference between the two. A hobby costs you money, and a business makes you money. If you're trying to run a legit business, you've got to treat it like a legit business and including your finances. Number five, not paying yourself. I know you're already giving everything you've got to this small business of yours. Your time, your energy. But there are some guardrails you've got to put up so you don't burn out and don't go bankrupt. And one of those is paying yourself. If you're early in the game, start by paying yourself a modest, steady amount. Just a basic living wage that'll cover your essential household needs. Make this part of your business budget. It's not about luxury. It's about survival while you're building. And you might be eating rice and beans for this season when cash is tight. You might be the last line on the spreadsheet when you're hustling to make payroll. But that line still needs to be there. You can't ignore yourself forever. Once the business is profitable, you can start taking ownership draws or bonuses, but only do that on actual realized profit. Remember, you can't have a healthy business if you're personally drowning. You have to take care of your business and yourself. We'll get right back to our episode but first, my friends at Belay exist to help business owners who are stuck find the time to get unstuck. Belay connects you with qualified US based executive assistants, marketing assistants and accounting professionals so you can concentrate on the things only you can do for your business. Belay professionals can take ownership of your scheduling, your communication and your day to day operations so you can protect your time and actually lead. Because your role as a business owner isn't to do more, it's to set the strategy and put the right people in place to execute it. And if everything runs through you, you don't own a business. The business owns you. And I'll tell you this, I know Tricia, their CEO and her team, they truly want to help you. So don't wait until you're burned out. Download Belay's free resource the Freedom Framework by texting ENTRE255123 that's ENTRE255123. Now let's get back to the episode number six not anticipating the Tax Man Old Ben Franklin said the only things we can be certain of in life are death and taxes. We all know that, but why is it such a problem? It's because we don't plan for it. You have to be prepared for when and the how much. A good rule of thumb is to set aside about 25% of your earnings to pay towards taxes quarterly. And hey, if you have tax questions or want some help with this, connect with the Ramsey Trusted Tax Pro. They'll help you get your taxes done right so you can stop stressing and focus on running your business. We'll leave a link for you down in the show notes to connect with one of them. Number seven not keeping up with inventory. You've got to know your numbers and that includes staying on top of your inventory. If you don't know what you've got in stock and what you're going to need, you can either over purchase or over promise. Either of those can ruin your relationship with your customers and your bottom line. Number eight not paying debts. If cash flow is the killer, debt just brings a quicker death. If you're behind on your bills, robbing Peter to pay Paul and hoping it all just works out, you're not leading, you're surviving. The first step is simple but critical. Start paying your bills. Get current. Take ownership. You can't get traction when you're always sliding backwards. And once you're stable, here's the bigger goal. Build a business that runs without debt. That's not just theory, it's how we do it here at Ramsey. We operate in a beautiful multi million dollar campus. And we paid for it all in cash, one building at a time. No debt, no payments, and no pressure from the banks. But don't miss this. It all started on a card table in Dave Ramsey's living room. So no matter where you're starting, five employees are 50. You can build your business debt free, and you should. But it starts here. Pay your debts, cover your bills and get current. That's how you stop the bleeding and start building something that lasts. And I get that a multi million dollar campus might feel out of reach right now. Maybe for you, the idea of multiple locations or getting properly staffed, that even seems impossible. But don't despise humble beginnings. It's okay and normal to start small. Every great business, including this one, started with humble roots and a clear decision to do things the right way. And now that you know what leads to cash flow problems, I want you to commit to do everything in your power to avoid them. This is how you get your cash flowing for you. And not away from you.
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If you've listened to me for more than a minute, you know I believe cash is king. It's because I've lived this. When I built my real estate fortune on debt, I went bankrupt. When I built Ramsey Solutions with cash, well, we've become a 300 million dollar company. But it's about more than that. It's about the lives changed. You've got a business to build. You've got clients who need what you have to offer. Don't be another company who crumbles because of poor money management. Get your cash flow under control and get to work doing what you were made to do. If you enjoyed today's episode, be sure to like, share and subscribe for more great leadership content. I'm your host, Dave Ramsey, and this is Entree Leadership.