So are you finding cashflow a big challenge for your business? Do you find it hard to have the cash on hand to pay some bills?
The secret to success is 'cashflow' and it's much easier to get a handle on that you expect.
What is Cashflow?
Simply, the flow of cash through your business – it is the process of collecting, disbursing and accumulating cash. It can be positive – you are able to pay your business costs when they are due and to have some left over OR…It can be negative – you simply do not have enough cash from your business trading to meet your business costs – this means that you need to borrow or contribute personal funds.
The Difference Between Profit and Cashflow
Why do profitable businesses go broke? Because they have not managed their cashflow well – their profit is tied up in stock, Work In Progress (what you need to produce your products), debtors (customers who haven’t paid yet but have your stock), or capital expenditure (equipment, cars, computers etc).
Sales are not converted to cash in time to pay creditors, the tax office or loans. Businesses often don’t take into account their cashflow before making capital purchases (equipment etc that has to be paid for before you use it within the business).
In this economic environment we need to:
- return to basics
- not expect that the way we did business in a booming economy is appropriate for an economy that is not doing as well – remember the definition of insanity – doing the same thing over and over and expecting a different result. We must be relevant and be prepared to change and adapt quickly.
- know our customer, understand the likely change in buying patterns and recognise that we are operating in a different business environment where the buyer responses are different.
The impact of not understanding the flucuations your business goes through with cashflow seasonally and during varying economic clients is serious and it’s being seen in the latest statistics on business insolvency – in businesses going under.
Creating Robust Cashflows
Let’s have a look at some of the facets of our businesses which we should be reviewing so we can create robust and health cashflows:
The “Cashflow Cycle”
This is a typical example of the Cashflow Cycle.
It may seem on the surface that a service or a professional business is not affected to the same degree that a retail or manufacturing business may do, but ALL business are impacted by the gap between investing in the product or service for resale and the receipt of payment.
Each business will have its own variations that will have an impact on the end result.
During challenging economic times we find the following occurring that create cashflow potholes:
- Stockturn reduces because customers are buying less
- Debtors increase as customers take longer to pay – it takes them longer to get money in the door so they take longer to pay you
- Creditors are fighting their own cashflow problems so are being more assertive and insisting credit terms are adhered to – so you’re being required to pay up faster
9 Tips for Create Positive Cashflow
So to make cashflow a positive element in your business and take a bundle of stressful elements away, here are nine great tips for making sure you have a healthy and robust cashflow:
- Take care with stock lines affected by obsolescence. Be aware of changing customer buying patterns and adapt quickly. Offer this stock on sale or as a “value add” in a bundle of products and get them out the door and freeing up space for income generating products.
- Adopt “just in time” maintenance of stock levels so you can reduce the amount of money you owe to your creditors.
- Be alert and proactive with debtors, undertake credit checks, offer prompt payment options and get money from them in the door as quickly as you can.
- The easiest way to get cash in the door quickly is to simply remove 60+ days from invoices! It should ONLY have two categories... 30 Days and Overdue.
- Be selective about who you give credit to. Insist on cash or have the customer use their credit card and only slowly offer them limited credit terms once the relationship is established.
- Prepare a “cash flow forecast” to alert you to future likely cash needs so you can manage accordingly. This can be done in Excel and kept to being a very simple and effective tool that includes a calendar of known costs and outgoings like tax, wages, electricity, rent, insurance etc.
- Have a budget and review that against actual expenses each month. This is a great management tool you can also create in Excel.
- The key to successful cash flow management is communication – with debtors, creditors, lenders, employees, when people are informed they can much more easily accommodate change.
- Lastly, “implement” what you decide to do. Remember, “the power of an idea is in it’s implementation”.
Meet Wayne Donnelly of 10X
Coaching and mentoring is a fundamental part of Wayne’s life. From his teenage years’ involvement in competitive sports, swimming, life saving and rugby league to his accounting and financial planning roles, he has coached staff and clients.
One of the first things you will notice about Wayne is his passion for coaching. Wayne will do what it takes to see you achieve your personal and professional best, giving you the benefit of his exposure to better, faster, and smarter ways to achieve outstanding results.
In August, Wayne will be running two Cashflow in a Crisis workshops on behalf of the NSW Business Chamber. Join him in Liverpool on 15th August or in North Sydney on 29th August
Contact Wayne of 10X to discover the real potential of your business.
Check Out These Articles!
|Small Business Social Media Seminar Calendar
The She Inspires Small Business social media seminar series runs from February to October 2013 with an exciting range of seminars to help small business owners make the most of the latest marketing skills.
Find out the calendar of social media seminars here.
|9 Top Tips for NetworkingDoes networking seem shallow and daunting? Would you rather form strong, authentic business relationships with people you like doing business with?
Well find out how to make networking work best for your business and your ethics with these practical tips from Wayne Donnelly of 10X.
|How to Create Your Own Facebook Strategy
While getting on Facebook with your business might be your goal, how are you going to make it work?
This perplexing question faces many business owners so to help make sense of it all and let you make Facebook work it's miracles we've got a plan for you.
|Social Media Tips for Small BusinessWith the continuing growing influence and power of social media we thought it would be a great resource to bring together a series of top tips, stories and interviews about social media so you can grow your small business!
Here we have a growing collection of interviews with savvy small business owners creating successful businesses and useful social media how to articles.
|Social Media Events for Small Business
Want to make sense of social media for your small business? Join us with our social media training events this year and grow your business and your skills.
Find out about the social media seminars, get some great tips and book online here.
|Real Businesswomen Making Social Media Work
Learning from others is always a fabulous path to discovering that little nugget of gold that makes the other pieces fall into place.
I keep meeting women from She Business and being impressed. So I thought I'd share the inspiration and find out how 5 businesswomen are making social media work for their endeavours.
|Facebook Tips for Small BusinessMaking the most of the opportunities offered by social media is a challenging prospect for small business. So we thought learning from others who are making it happen sense of the social media world would help all of us!
Here we have a growing collection of interviews with savvy small business owners creating successful businesses on Facebook and useful social media how to articles.
|7 Big Mistakes for Businesses On FacebookMaking the most of social media for a small business can seem challenging and nearly impossible and if you get the basics wrong it can be a complete waste of time.
So to help small businesses not only make a success of their Facebook page but also enjoy this vibrant and welcoming online community we thought some handy tips on how to avoid 7 very basic etiquette mistakes would make life a whole lot easier!
|5 Tips for Social Media SuccessWhen Angela Vithoulkas of VIVO Cafe in the heart of Sydney suddenly lost 2,000 customers in the GFC in just a few days she knew that if her business was going to survive then she had to find a cost effective way to attract at least another 2,000 new customers.
Find out how Angela grew her business and now has international customers book tables for when they're in town with 5 top tips for making social media work for your small business.
|Career and Business ArticlesHere you find the full collection of Career and Business articles to make the most of your work life.
Find out how to setup your own and grow your own prosperous business and how to advance in your career.
Search by Keyword