Tag: direction

Which Direction is YOUR Cash Flow?

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CashFlowI understand cash flow. I have experienced all kinds of cash flow, and positive cash flow is far, far better than the other kind! Would you like some help with yours?

You may not be in this much mess, but some businesses owners/managers do not even know what their cash flow is. Some don’t even know what cash flow is! (The dictionary tells us it is the amount by which your cash revenue exceeded your cash outlays in a given time period).

Another way to look at it is it is the income that exceeds costs and basically it becomes profit, it is one of the ‘must haves’ for continuing in business.

The chances are that you already know about your cash flow – if you stress about paying bills then most likely your cash flow is not good, or if you just pay bills without really thinking about them then your cash flow is probably quite good.

If your cash flow is bad – what can you do about it? The first step is to get control of it, and to do that you  must measure it. That will then allow you to forecast your cash position, and that means you can at least schedule paying bills, and eventually you will be able to pay them without much effort at all (assuming that you also pay attention to your cash flow information and take steps to fix it – more on this later).

Start by recording all expected income over the next three or four reporting periods. You can choose any time period that suits you – weekly, monthly or quarterly though for most businesses monthly is probably the most appropriate. Next, record all known outgoings during those same periods.  Many modern accounting packages have standard reports that will give you this information at the press of a button.

What do you do is your cash flow isn’t what you need to be able to at least pay all of your bills? Obviously you need to increase it, and there are a coupe of different ways you can achieve this.

Look for the easiest steps first – what will bring the biggest improvement in the shortest time for the least effort? Quite often that is chasing your Debtors.

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If you give credit then check your ‘average days outstanding’ (or ask your Accountant). If that figure exceeds your credit terms then you are paying the interest on your debtors funds. (Well, you pay your borrowing cost to your Bank, and you’re only paying those costs because of unpaid invoices – and that’s money that you can’t easily get back).

Chasing your money – your Debtors – doesn’t have to mean being nasty. What I do is start by asking if they received the invoice in question, and if they say “Yes” then I ask if they recall the payment terms? If they claim not to have received the invoice then I immediately arrange a copy, and I follow that up to ensure that this was received.

If they recall the payment terms then I ask them when they ‘will’ be paying my invoice. If they don’t recall (or claim not to) then I tell them, and then ask when they will be paying my invoice. I then explain that I cannot afford to carry their interest, and that I will expect payment on that day. I then tell them that if payment is not received on that day (the day they selected) I will not contact them, instead I will contact a debt collection agency.

There is seldom any argument – they have selected the payment date, and unless it is outrageous I do not challenge it. They are also aware of the expected behaviour, and of the consequences of not behaving in the required way (pay my invoice!).

Some people say that the recalcitrant Debtor “Is my biggest Client”, or is “too big to lose”. Well, I doubt that – if they are not paying their bills then you probably are not making a profit from their business anyway. Your business doesn’t need sales that do not make a fair profit, and it doesn’t need Debtors that consistently do not pay on time.

Let’s explore that a little further. If you borrow to pay for your Cost of Goods Sold it adds those interest charges to your effective COGS.  As an example if it costs you $50 plus interest you are still OK if you sell at $100. Your interest bill is effectively eliminated when you sell the goods, by paying back the loan used to buy the raw materials.

Now let’s look at a similar scenario – if your invoice is not paid then it costs you interest, either by not repaying the loan for COGS or you are missing out on Interest Received. The next month it costs you the same plus a compounding effect on the interest from last month. You pay interest once if you invoice is paid on time, or you pay compounding interest every month if your invoices are not paid on time. No business can afford that for long.

Have you changed your perspective after reading this? If so – in what way?

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Much has been said and written about networking. Most of that is made up of techniques, what to do under different circumstances. This document takes a slightly different tack and instead looks at the basics of networking, more ‘what’ to do rather than ‘how’ it needs to be done.

Getting the right ‘what’ will allow you to develop far more effective ‘how’s. Starting with the right ‘what’ means that you are heading in the right direction, anything else means that you are rowing your boat away from the finish line!

So what IS networking? The answer to that is it is probably different things to different people. Regardless of why you network, you must understand that networking is not a different kind of sales call. You do not attend a networking function to close a sale, instead you attend to open a relationship.

Networking is getting to know people, and letting them get to know you. It represents a way that you can demonstrate your business purpose and principles, how you treat your customers, your attitudes, your abilities and how productive you strive to be.

Be prepared to give your knowledge away for free when you network, and give it away with no expectation of a sale. You are establishing your credibility, not making a sales presentation.

You will get sales from the effort, just not necessarily from the person you are talking to. If you demonstrate your industry knowledge and your personal values then you will make an impression, and eventually you will reap the reward. It may be because the person you spoke to now wants to buy what you sell, or it could be that someone they know needs it.

This is the Law of Reciprocity acting on your behalf. You give value and then that value will return ten-fold. All you need to do is kick the process off by attending networking functions, and let yourself become well known.

It isn’t just turning up and finding someone to talk to though. You need to have specific goals when you network. Some people set networking goals in terms of the number of people they want to establish a connection with, and whilst that’s a great start, there is more to networking than that.

Let’s take a look at what makes a good network and then we’ll take a closer look at the goals you need to set.

A good network isn’t measured by its size alone. Some people have a very strong relationship with 30 or 40 people, and that’s all the network they need. Others have networks of hundreds, perhaps thousands and still don’t have what they need.

You need people who will bring you opportunities, people who will advice or mentor you to get the best out of those opportunities. You need people who will finance those opportunities that stack up. You need people who can manage existing opportunities, and people who will work on the opportunity, both of which allow you to look for the next one – and keep an overall watchful eye on the current crop.

You also need raving fans who will tell everyone about how good you are at what you do, and you need people who will support you with some kind words and appropriate sympathy when things don’t quite go as planned.

Finally, you need some people just like you who are on the same path – to share experiences with, to inspire each other and to provide you with the right ‘grounding’.

Imagine for a moment that you had every one of these positions covered except a Financier. You would struggle to launch any project that you couldn’t personally fund. If nobody brought you new opportunities you would only have those that you directly started. No project managers means you would have to look after them all.

Can you see that your ‘network’ has to be more than just a list of names?

Try this little exercise. Using your own titles for the different roles (Financier, Project Manager, Peer etc) make a list of at least three people in your network that perform that role. One person can have more than one role, although you should minimise multi-role people where possible.

Do you have all the bases covered? If not, what roles do you need to improve? What can you do to find the right people and add them to your network? What WILL you do?

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