5 Killer Mistakes – Part 3
The last 2 posts covered the first four of the killer mistakes you can make that will not only make you lose your fish, but possibly your entire company. Today we’re going to talk about the fifth killer mistake: Up Cash Creek Without a Paddle.
Even when business is good there’s still a chance of running out of cash flow. This is one of the two areas you need to be all over, the two areas being Cash Flow and Profit. Having one without the other still means your business is at risk. So its important to be aware of both and have strategies and processes in place to improve both Cash Flow and Profit. Below we are going to talk about setting your business up for great Cash Flow, in this post we are looking at a slowdown in Sales and the impact that can have on business. The other scenario which can also impact business Cash Flow is an increase in Sales. This occurs when you haven’t identified the size of the Cash Gap in your business the length of time it is in days, and also the cost of funding that amount and length of time. Cash Gap occurs when you buy stock for example, pay your supplier on pickup or short terms, then hold that stock for a considerable time then sell it 45 days after you pay for it, raise the Client invoice 7 days later and then your client pays for the goods and or service in another 45 days. This potentially has you funding that cash gap in this case for 97 days, This may be okay at your current level of sales volume and margin, however if your Sales increase you may not be able to afford the extra volume based on your current margin without assistance from your bankers or investors. So following the process below means you will first decrease the length of time of your current Cash Gap and then you will be better placed to handle an increase in Sales Volume.
Alternately you have to always be prepared for a slow in sales or a surge in expenses. One of the keys to balancing your cash flow with the goal of reducing your “Cash Gap” is to get your clients to pay on time. This can seem like a nightmare, but is absolutely essential to a successful business.
Here are some tips to speed up the payment process and Reduce your Cash Gap:
- Always send invoices on time and adjust your records for potential audits.
- Learn how the client processes payments on their side and find out precisely where to send invoices.
- Find out who’s in charge of processing orders and payment, so you know who to contact if needed.
- Have a follow-up procedure in place, just in case.
- As a last resort, call your contact to ask questions.
- Always make sure your invoices are correct before sending them out.
- Make it Easy for your clients to pay.
You also need to make sure your cash flow is protected. You can do this by:
- Always know which accounts need payment and when.
- Negotiate with your Suppliers for the best or longer terms.
- Negotiate with your suppliers for the lowest cost possible.
- Have a bank contingency plan in place.
- Build your own inventory network.
These are all great ways to protect the cash flow of your business and prepare for fish transitions and slow sales. These last few lessons are all about finding and catching your big fish clients. These clients are essential to your success and your need to take the time to work through each of these steps carefully and correctly for the best success.
If you need help with any step of the process of catching your fish or subsequent big fish clients, try our FREE test drive for access to a wealth of great tools and resources as well as our business coaching staff.
To your Success,
Steven Rouget.