Reviewing your cash flow is an opportunity for growth.
What makes your business tick? What moves the needle?
Do you know the right metrics that measure your business’ performance? For a hair salon it could be the number of cuts vs colours as profit will differ. For a product sales based business it may be promotions vs trials and relative conversion rates. Some will be the same across businesses and some specific.
No matter what metrics are measured and monitored to see how successful sales are, when it comes down to what really matters – it’s cash … sitting in your account for being paid for products or services you have professionally delivered.
Nothing brings this to reality more than a cash flow crisis. I hear of many businesses that have taken money from personal accounts to subsidise business accounts. But this isn’t sustainable.
To avoid having such situations, cash flow forecasts are critical. Once you have identified an impending cash flow problem, what do you do next? There are so many options under the ‘working capital management’ opportunities for example:
- Sales payment terms and conditions
- Chasing outstanding debtors
- Credit checks on new customers if opening trade accounts
- Assessing timing of stock or other major purchases
- Negotiating better terms with suppliers
- Reviewing old or slow moving stock
- Checking minimum stock ordering levels
My son is learning this fast as he raises funds for a school trip selling chocolate chip cookie mix jars. He’s quickly learned sales orders are vanity, profit funds his trip BUT as payment is on delivery he has no cash to buy the items needed to make the jars.
He then approached Bank of Mum and Dad to borrow the money. But I explained that he did have other options. And he started to ask for prepayment from customers.
Similarly, most businesses immediately go to their bank seeking an increased overdraft or loan too or subsidise through personal funds. There are many other options.
When was the last time you scrutinised your cash flow? And the bonus is, once you manage your cash flow better, self financing growth options becomes an exciting discussion.
If you would like support on reviewing your cash flow and working capital improvement options then do get in touch with me, using the Contact Me page.