Here’s what we’ll cover
Today I’m talking cash. We all want it, you know you need it but so many of us are not really controlling it. We are going to cover cashflow planning. However, cashflow planning is just one piece of the cashflow puzzle if you want real business success.
Businesses that succeed understand that without visibility into their cashflow they risk steering their business off track. I’ve worked with countless business owners over the years and I constantly see people ignoring their cashflow until it’s almost too late.
Here’s a big heads up for you – You can be a highly profitable, multi million dollar business and still have cashflow issues that can take you down. Cashflow planning and the other important cashflow points I talk about in today are mission critical. In another podcast I’ll explain exactly how that can be but for now just trust on that – it’s a thing. Making a profit doesn’t always mean you have cash.
Today I want to give you a heads up to what might be quietly causing you cashflow issues in the background of your business.
There are six common mistakes that can silently cripple cashflow and can kill a business. Here’s all 6 of my top tips to avoid a cashflow crisis. The I’ll dive a little deeper into each one for you.
1. Measure your Gross Profit
2. Keep control of your finances
3. Chase the people who owe you money
4. Control your outgoings
5. Avoid the debt trap
6. Forecast your cashflow – cashflow planning
Links and Resources
- Checkout the Simply Smarter Numbers website HERE
- Checkout the Podcast HERE
- Checkout the Instagram page HERE
- Checkout the Cashflow Planner HERE
Keep Listening!
Here’s the shownotes
Today I’m talking cash. We all want it, you know you need it but so many of us are not really controlling it.
Businesses that succeed understand that without visibility into their cashflow they risk steering their business off track. I’ve worked with countless business owners over the years and I constantly see people ignoring their cashflow until it’s almost too late.
Here’s a big heads up for you – You can be a highly profitable, multi million dollar business and still have cashflow issues that can take you down. In another podcast I’ll explain exactly how that can be but for now just trust on that – it’s a thing. Making a profit doesn’t always mean you have cash.
Today I want to give you a heads up to what might be quietly causing you cashflow issues in the background of your business.
There are six common mistakes that can silently cripple cashflow and can kill a business. Here’s all 6 of my top tips to avoid a cashflow crisis. The I’ll dive a little deeper into each one for you.
Measure your Gross Profit
Keep control of your finances
Chase the people who owe you money
Control your outgoings
Avoid the debt trap
Forecast your cashflow
I’ll talk through each one of these today then over the coming weeks I’ll look at dedicating individual podcasts to each of these cashflow killers so that we can really dive deeper into each one of them.
I should also say that I have a 13 week business cashflow planner with templates, written and video instructions that you can purchase – just go to www.simplysmarternumbers.com/cashflowplanner to check it out. You can use the discount code ‘Podcast’ to get a $20 discount.
Let’s dive into each of these 6 cashflow tips.
- Measure your Gross Profit (GP)
Building enough margin into your products or services can help you avoid a cash flow drought. Your gross profit is the money that’s left over when you sell your product or service, but it doesn’t include your expenses.
A tiny 3% drop in your gross profit can potentially cost you thousands! If your GP drops over time, you need to know today, not in 12 months. If you don’t know, your GP will silently kill your cashflow. Measure it, monitor it, manage it. Not once a year, not once a quarter, every month.
This goes for service businesses, e-commerce, retail, online, brick and mortar – everyone.
As for what gross profit looks like for a service business? Grab your pencils and you can write this down.
If you are a website designer and you make $15,000 for the month of June.
You also had labour costs – that’s your hours on the jobs and your teams hours on the jobs of $9,500, then you will have a gross profit of $5,500.
That’s $15,000 minus $9,500 = $5,500
At the moment that $5,500 is just a random number. It becomes more meaningful when we turn it into a percentage and it becomes your GP%.
It is more meaningful as a % because then we can compare June with May with April and so on.
As for how to turn it into a percentage – $5,500 / $15,000 x 100 = 36.6%
Now you can compare these percentage every month even if you have a massive month in July and your sales are $35,000 – you can compare one month with the next when you turn your gross profit into a percentage.
If every other month has a higher percentage and suddenly you’re seeing that percentage slip then you have a heads up that something is not right.
- Keep control of your finances
Do you know how much money is in your bank account today? Do you know how much money will be in your bank next month? Do you know how much money is owed to you? Do you have controls in place when it comes to spending?
Knowing your financial position at any moment in time is key.
It’s not good enough to leave it to someone else.
There’s no faster way to land yourself in hot water than by relying solely on your admin person, your book-keeper or your accountant to know your financial position and warn you when things aren’t looking good.
Avoid the risk and give them a list of key things they must report to you every week.
One of these key things might be your gross profit percentage.
- Chase the people who owe you money
Whether people owe money to you or you owe money to them… debtors, creditors and the timing of when your money comes in or goes out, is mission critical. Have systems in place to be sure you know exactly when someone is late paying you. These are your debtors.
Be on the front foot. ASK them for the payment. Don’t be shy. Most people don’t purposely hold back payments – it may be that they simply forgot!
Similarly, clients holding up the completion of work which holds up the invoicing of the job – chase them for the work, the approval, the edit – whatever is holding up the process – have systems in place to chase the clients that you need to.
- Control your outgoings
Keep on top of how much money you owe and exactly when you are due to pay the bills. These are your creditors. Don’t over commit – in saying that – none of us are silly, we don’t purposefully spend more than we have to. My point here is when it comes to creditors, surprises are not good. Surprises can be cashflow killers!
If you’re having problems making a particular payment – be on the front foot, contact them, tell them you’re having issues paying the account – treat them the way you’d like to be treated. You’d prefer a phone call from someone who couldn’t pay your invoice a couple of weeks in advance so do the same thing for people you owe money to.
Good relationships are key to controlling cashflow when things start to go awry.
- Avoid the debt trap
Your debt repayments can creep up on you over time and banks have been known to be all too accommodating when it comes to increasing your debt.
My big tip here is that just because the bank says you can have it, doesn’t mean you can afford to repay it!
The trap that I’ve seen businesses fall into time and time again is that their overdraft becomes an everyday part of business. In my world, we have a name for that – ‘hardcore debt’,
When short-term debt becomes a hardcore, permanent part of your business, it becomes a major potential cashflow killer.
- Forecast your cashflow
Is there a worse feeling in business than not being able to make the next loan repayment? Or possibly not being able to pay wages… now that hurts! No one wants to do a cashflow forecast – it’s far from sexy, far from fun, but super important.
You don’t need to start off with a 12 month forecast, which can feel useless and unrealistic. I often talk about a 13 week forecast. It’s a great place to start. To be able to look forward 13 weeks into your cashflow – week by week gives you a chance to fix any potential issues before they quietly creep up on you and hurt your business.
I have a 13 week business cashflow planner with templates, written and video instructions that you can purchase – just go to www.simplysmarternumbers.com/cashflowplanner to check it out. Use the discount code ‘Podcast’ to get a $20 discount.
So there are your 6 silent cashflow killers.
You need to;
Measure your Gross Profit (GP)
Keep control of your finances
Chase the people who owe you money
Control your outgoings
Avoid the debt trap
Forecast your cashflow
