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Cash Flow: How To Turn Your Business From A Cash Eating Monster, To A Cash Cow

Before I show you our business money management tips, specifically, how to turn your business from being a Cash Eating Monster (Cash Flow negative), to a Cash Cow (Cash Flow positive) by creating a few money management habits…..

Let me show you, what Cash Flow is……quite simply

It’s the money that goes in and comes out of your business.

Lets be honest, you instinctively know what Cash Flow is, you already do some form on business money management.  When you’re short on money and you cannot pay wages or supplier bills that are piling up, you know you have an issue, a Cash Flow issue.  When you need to chase customers for overdue payments (triggered because you can’t pay your bills), that’s a cash flow issue too.  What about when the bank is chasing you because your’re overdue on credit card or loan repayments?  There is a pattern here, right?

It’s Not Fun

Having cash flow problems can effect the capacity of your business to grow, it takes a toll on you emotionally and physically too.  Stress can reek havoc on the body.  And what about the challenges it causes in your relationships?

But There Is A Way Out!

I have heard a lot of comments by business owners along the lines of “once you have cash flow issues it’s hard to get out”.  Well guess what, it can be done.

Is it easy?  No.  But it could save your business, your relationships and your self esteem.

By taking small incremental steps you can totally turn your business form being a cash eating monster to a cash cow.

Milk it baby, milk it!!

So let’s take a look at……

6 Business Money Management Tips: Cash Flow Negative to Cash Flow Positive.

1. Invoice your customers straight away

With the technology that is available to us there is no reason why you cannot invoice your customers and receive payment straight away.  If you’re a road worrier, there are software options that allow you to invoice and receipt payments on your phone or tablet.  If you’re a service based professional, set your customers up on direct debit.  You can even do this for services in advance.  Check out the options with Xero, QBO and MYOB Essentials for invoicing on the go.

2. Introduce easy payment and follow up systems

As well as invoicing on the go, you can collect payments too.  Setting up a Point of Sale (POS) system can save you loads of time and will do wonders for your cash flow.

Look at payment gateway options with your accounting software provider, or there are loads of portable merchant facilities around, look at Square or even Paypal.  Ensure you do some research into their monthly fees as well as transaction fees and find the right option for you.  If you have a high number of customer transactions, an account with lower transactions fees and a monthly fee might be better than one with no monthly fee but high transaction costs.  Do a quick calculation to work out how many customer transactions you are likely to put through each month.

If you have easy payment options, customers are far more likely to pay on time.  Meaning you won’t be having to chase them up all the time for overdue moneys.  However if you do find yourself in the situation where your aged receivables are getting out of hand ensure you introduce a follow up system.

Email reminders and a phone call go a long way.  A lot of business owners feel bad chasing customers for money, you just need to remember that you have carried out your end of the transaction and provided the goods/service,  you have nothing to feel bad about.  It it is unlikely that they have held back money just for the sake of it.  Be understanding if they are in a situation where they are struggling, and come to a mutually beneficial arrangement.

3. Increase your gross margins

Early in the game you might fall into the trap of dropping your price just to win the job.  Low paying customers are better than no customers right?……Wrong!

As your business grows and you take on staff and more or larger overheads, your business cash flow cannot afford to drop gross margins.  Do a check on your margins as they are now, could you increase them by 5%, 10%, or more?  When you change your fee structure, clients normally go along with it, as long as they can see you are proving them with added value.  Think of ways you can add value to your customers, with out a huge cost increase for you.  It could be as simple as implementing that newsletter you have been planning for years.

Add value, increase your gross margins and your business money management will become a whole lot easier.

4. Reduce expenses by 10%

Are your overheads killing your business?  Business money management and making the cash flow in the right direction was probably not something you were trained to do.  They sure don’t teach it in school.  Keeping costs down, means more money back to you in profits.  Do a review of all your expenses.  Do you have any unnecessary staff?  Try calling the bank and getting your rates and fees reduced.  If they won’t budge, change banks.  Are there any unnecessary expenses like excess stationary, unnecessary luxury cars (yes look at both ends of the value scale).  Most businesses I have worked with can easily reduce their expenses by 10%.  Making cash flow easier and giving more back to you.

5. Get rid of unnecessary staff

This is a tough one.  Especially if you’re like me and don’t like to let people down.  However, if you are keeping on staff that your business cannot afford, you are not doing anybody any favors.  Eventually you could loose the whole lot, and where would your staff be then, not just a few of them, but all of them could be out of a job.

I recently started working with a client who put off two staff members, reducing his expenses by about $60k.  When I asked if he was missing them, and if he and his other staff were now overworked he said “No.  The staff I let go were disruptive and unproductive.  Now that they have gone, the other members are producing more within their allocated hours”.  That’s $60k more towards profit.   Take a look at your staff performances and production capabilities, are they performing as they should?

6. Be on top of your bookkeeping

I might sound a little subjective here, but keeping on top of your bookkeeping is imperative.  You won’t know your income, expenses or cash flow needs unless you have accurate, up to date accounts.  Think of your accounts as your ultimate scorecard.  A well crafted set of accounts can show you how you are scoring against your KPI’s and industry benchmarks, and it can create the road map to the changes you need to make.

Enjoy the positive cash flow

Implementing these 5 tips can radically change the future of your business.  Get started, pick one item to introduce into your business each day over the next week.  Once your systems are in place you can enjoy the positive effects on your cash flow and business money management gets easier by the day.  Enjoy!  You’ve worked hard.

Thanks for reading!

Sincerely,
The PBP Team

P.S. Start at the top.  The tips are in order of what can and should be implemented first to gain the greatest impact on your cash flow.

Please leave a comment and let us know if you have used any or all of the tips.  We would love to know what worked, and what didn’t.  If you have any challenges or questions, you can email us at info@perthbooks.com.au