Cash Flow: The Lifeblood of Your Business

The latest MYOB Business Monitor Survey for April showed that the leading concern for most of the 1000 owners they surveyed was around cashflow issues. With current estimates indicating that approximately 90 per cent of business failures are the result of poor cashflow, the level of concern is hardly a surprise. Don’t let your business be one of them.

Maintaining smooth cash flow requires juggling nearly every facet of a business, from staying on top of accounts receivable, to extending lines of credit, to managing inventory. The essence of successful cash flow management is regulating the money flowing in and out of your business, to reduce the amount of fixed capital that you need to support the given level of your business.

A lot of business owners we talk to often suggest that the way they want to increase cash flow is to increase sales. Strange as it may seem, this can kill a business faster than by doing nothing. The reason is that the business may be “cash negative” (consuming more cash than it generates) and so the extra sales generated need to be financed by additional borrowing or capital injection by the owners. This can drive the business into a worse position than it already was. It is essential that a Net Variable Cash Flow analysis is done on the business FIRST before additional sales are chased.

I can do this for you at no cost so either email me to make an appointment or contact me through the website here: Cashflow solutions

So, what can be done to turn a negative Net Variable Cash Flow situation into positive territory? Try these ideas to start:-

1. Organize your billing schedule

The faster your receivables turn over, the more capital you'll be able to spend on growing your business. Make sure you send bills out promptly each month and put in a system to flag any overdue accounts for immediate follow-up. Put in a documented credit management system and stick to it.

2. Stretch out your payables

Take the maximum amount of time allotted (often 60 or 90 days) to pay your suppliers. Think of these terms as an interest-free line of credit from your supplier. It gives you sufficient time to collect receivables without spending money on short term credit lines. Perhaps use the interest free period afforded by credit card companies and use your credit card for purchases. Just make sure you pay it all off on the due date!

3. Take advantage of early payment incentives

If your suppliers offer you a discount for paying early, take them up on it. Think of it this way: a 2% on a 30-day invoice is equal to a 24% annual return if the money was invested. If your suppliers don't offer this kind of incentive, ask for it; they may be willing to offer the discount in return for speeding up their receivables.

4. Balance your client base

Is there any opportunity to change some of your clients into a regular paying regime (retainer for a set number of ongoing services), rather than a project-by-project basis only? This may reduce profitability a little, but will help to smooth out cash flow. Institute a deposit system for larger projects where the client pays something up front and regular progress payments.

5. Check your pricing

When was the last time you raised your prices? Many small businesses hesitate to increase their rates because they're afraid they'll lose customers. However, customers actually expect their suppliers to institute small, regular price hikes. Also, check out your competition on a consistent basis. If they're charging higher prices, you should too.

6. Reduce your inventory

Liquidate older inventory by having a sale and turn that stock into cash. Once you have done that be careful of bulk offers by sales reps that can result in becoming over-stocked again. It is tempting to take advantage of a seemingly great offer by a persuasive sale rep, but how fast can you sell all that extra stock and what extra margin will you make?

Once some of the strategies listed above have been implemented and the business is stable and has a positive Net Variable Cash Flow, you can go out there and chase those extra sales, safe in the knowledge that the bank balance will be going up, not down.

You can find out more here: Coaching in business

Andy Burrows

Senior Advisor - Icon Business Solutions

Email: andyburrows@iconbusinesssolutions.com

Web: www.iconbusinessolutions.co.nz

Icon works with the owners of independent businesses to help them make more MONEY, build better TEAMS and allow the owner to spend MORE TIME where they want to.

Up Your Quality Game for a Big Jump in Business Profits

Research shows that most SME’s lose between 5%-15% of sales revenue as a result of the lack of attention to quality¹. Lose this much revenue and a significant portion of net profit is lost as a result, holding companies back from growth and providing a decent ROI to its owner. In addition, buyers in domestic and international markets are demanding that their suppliers operate quality management systems as a means of ensuing strong commitment to quality, productivity, cost competitiveness, and customer satisfaction.

So what can an owner do about this? Traditionally organisations throughout the world are using tools such as the ISO 9000 series of standards to help them achieve high standards of quality. However the ISO9000 standard is a big beast and requires a company to commit considerable management and financial resources to implement it. After all the ISO 9000 standards were originally developed for large manufacturing companies supplying products and services to the defence, aerospace and nuclear industries.

A more workable option needed to be developed that better suited the small business situation in NZ where the owner is often driving such initiatives. A good example of such a model has been put together by Telarc Limited, a New Zealand management systems certification body. They have developed the Q-Base Code quality management system for SME’s in the early 1990s. If improving your quality game, eliminating mistakes and satisfying customer requirements for a quality guarantee is needed in your company, then this Q-Base code should be looked at.

There are seven clauses in the Q-Base Code. To become registered you need to meet the requirements of each clause. You will need to write down what you do in a way that works for you. Briefly, here’s what you need to do:

• Assign a staff member to the job of Quality Coordinator

• Have a way of controlling critical documents and records

• Have a way of understanding your customers’ needs

• Have a system for purchasing

• Train staff for the work that they do

• Have plans for inspecting work, both in progress and when finished

• Have a method for continual improvement.

Even this Q-Base code will take some time and effort to implement, but the great thing about improving quality control processes is that any savings in production costs and reduced mistakes goes STRAIGHT TO THE BOTTOM LINE. To achieve the same increase in profits by focusing on growing revenue is likely to take much longer and take far more resources. Aim on working smarter, not harder.

Find out more here: Small business coaching

¹Sirma Karapeeva, Ministry of Economic Development

Social Media: Hype or Must Have?

Where is the third most populous place on earth? It is not India or Indonesia, but Facebook. So with over 500million users and people spending a growing amount of time there every day, can you make money there as a small business owner?

I believe the answer is both yes and no. Sounds like I am sitting on the fence, but I am not. My limited experience of social media (SM) networks indicates that if you expect to make sales directly from its use, you are in for disappointment. Where SM works best is as a reputation builder and from there it is possible to leverage it to drive traffic to where you CAN convert interest into sales. Of course where reputations can be build they can also be destroyed and social networks will do this quicker than anything else. By their very nature they spread ideas and opinions very fast and generally have more credibility in the users eyes than traditional media devices.

If you are in the Business-to-Consumer market, I believe you MUST have SM networking in your marketing activity plan. Consumers are paying less and less attention to traditional advertising and more to what their friends are saying on Facebook or Twitter. The ROI is a bit harder to measure in the B2B space. How many overworked, financially stressed business owners spend much time twittering or on Facebook to find out information, or have an extra hour or two per day to update their profiles? I think the jury is still out, but never-the-less ALL business owners should up-skill themselves more in this area and quickly. The pace of change is increasing and who knows where it will lead. If you aren’t on the train now, when you finally can see how to leverage SM networks for your business, it may be too late to jump on. I believe social media networks should primarily be used to strengthen your BRAND in the marketplace and to increase the level of trust that customers and potential customers have in you. Provide interesting and useful content. Aim to help people and educate them. As the level of trust increases, so too should the referrals, inquiries and conversion rates at the pointy end of the sales process. Or so the theory goes.

So how should a business owner implement SM network tactics? The first thing to do is STOP. Take a bit of time to PLAN your activities and make sure you are doing it for the right reasons, know who your target is and how best to engage with them. Some questions to ask yourself:

1. What are the needs of my business?

2. What am I using the site for?

3. Whose attention am I trying to get

4. Which sites do I want to take on?

5. What will be the hub of my SM network and what are the spokes?

6. How can I drive traffic to my website or my place of business?

7. Who’s going to manage my page/blog/twitter/etc?

8. Who’s going to be the personality of my SM posts?

Once you have answered these questions you are a bit better prepared to start monitoring the SM networks you are likely to use and then jump in with your own activities. Then like any marketing activity, monitor, review and improve what you do. Get into it.

For help with your small business marketing needs, contact the Andy Burrows for a FREE no obligation review of your business at Icon Business Solutions