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Commentary

Financial Crisis Means Cash And Carry For Business Owners

When investment bankers and Wall Street hedge fund managers moan about liquidity, it's tough for business owners to sympathize -- they're concerned about making payroll, overdue notices from suppliers, and keeping the lights on. In other words, cash flow. It doesn't matter if your company has a cadre of accountants or one person in the back room with a paper ledger, cash rules now more than ever.
When investment bankers and Wall Street hedge fund managers moan about liquidity, it's tough for business owners to sympathize -- they're concerned about making payroll, overdue notices from suppliers, and keeping the lights on. In other words, cash flow. It doesn't matter if your company has a cadre of accountants or one person in the back room with a paper ledger, cash rules now more than ever.On the radio, I heard a story about a machine tool company in Ohio that received a letter from an important customer asking them to stop all shipments. Alarmed, the business owner drove over to the customer -- a manufacturer -- to see if they'd gone out of business. They hadn't, but couldn't negotiate a line of credit and were tightening up on spending.

So the machine shop was losing business as a result of tightening credit, but that's not the whole story. The machine shop was tightening up on fulfilling orders to its smaller customers out of fear they couldn't pay -- demanding cash upon delivery, 50% payment in advance, or even cash up front.

But enough anecdotal evidence, let's get some numbers behind this. Cash flow concerns are at the top of the list of concerns cited in the recent American Express OPEN Small Business Monitor. More than half (55%) of the entrepreneurs surveyed are experiencing cash flow issues (up from 49% six months ago) and 17% of business owners are concerned about paying bills on time. As a result, more than a quarter (27%) are likely to reach across the work/life balance wall and use personal funds for their business, 11% plan to increase use of credit cards, and one in five plan to delay purchases.

Losing business due to tight credit and turning away business because of concerns about creditworthiness. Now that's a ripple effect -- from Wall Street right down to the smallest business. Of course, if you can pay cash for everything, the world's your oyster, but that's not the way business works (at least until last week).

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