Today’s Dear Coach is about the Three Actions You Can Take To Increase Cash In Your Business.
Ever hear the expression “Revenues are vanity, Expenses are sanity, but Cash is king”? It’s easy to fuel optimism with your sales numbers. You can do your best to control costs. But, what if your business leaks cash? How does that affect your daily operations? What’s the impact on your own paycheck? These 3 steps will help you get some answers.
Step 1 DIG FOR DETAILS
Business owners typically review their P&L and Balance Sheet to give them an idea of how their business is performing and to prepare for filing taxes. However, they often do not analyze their financials in any variance report format or broken down per revenue stream. Without this level of detail, trends and “money leaks” are easily hidden.
I recommend meeting with an outside financial consultant or CPA every quarter to help you dig deep into your numbers. Ask them to provide you with a profit analysis and recommend actions that will produce cash for your business. Be sure to schedule the tasks you need to accomplish, so you are more likely to turn ideas into results.
Step 2 GET OUT OF THE COLLECTION BUSINESS
Tremendous time and energy can be spent on collecting receivables. Among the many problems this causes are: Instead of leading your company, you are chasing down what you earned months ago; and You have made spending decisions (including your own pay) while underfunded.
Start to answer questions like: Should I shorten my net payment terms? Should I ask for down payments or progress payments for large projects? Do I have clients who chronically pay late, never refer business, but take tremendous resources from me? Determine how to close the gap between when you provide vs. when you receive.
Step 3 BEWARE SHINY OBJECTS
Got-to-have technology, tools, office space, vehicles, inventory, conferences in tropical locales… While expenses are often for legitimate reasons, just beware those shiny objects that make it easy to believe you have to have them. It’s critical you understand how such purchases impact your cash and the time it takes to recoup your investment.
Before making a capital investment in your business, inventory all of your assets – physical, fiscal, and people. Determine whether you effectively utilize what you already have, what you’d have to do to make that happen, and how you will make the most of anything new. You can even approach employee evaluations this way. You just may find you’re under utilizing a talented person!