When a company is growing at a rapid rate, you need to ensure that you have sufficient sources of cash to fuel the growth. Many business owners underestimate how important it is to keep a very close eye on the cash flowing in and out of the business. Most people will look at the Profit and Loss statement to see if it shows a profit, but that does not mean that a company has cash in the bank or sufficient resources to continue fuelling its growth. Cash is the oxygen of the business and without it the business dies.
When cash becomes tight, the first place owners will look is outwards, towards those who have access to cash – friends, family, banks, investors, loans, credit cards and the like. However, there are always ways to make a slight adjustment to your business, which will allow you to experientially increase your cash flow.
Take the work of Allan Miltz, founder of Inmatrix and Pearl Finance Australia, and well known speaker on the subject of cash. He identified a process called 'The Power of One' – by applying just a 1 percent or 1 day change is specific areas of your business, you could see a significant improvement within your business model. Ask yourself -when was the last time you raised your prices and/or compared your prices against your competition? What would the impact be of increasing the price of your goods or services by just 1 percent or more? While this is usually a subject that most businesses shy away from - for fear of loss of customers - you will be surprised how elastic your price can be.
How many products do you sell on a monthly basis? What would happen if you focused on selling more? Take a look at what sales and marketing strategies are working and do more of those and less of those that are not. When was the last time you reviewed your supplier base and costs? A regular review is recommended to ensure that you are getting the best price and service in market. Negotiate with your suppliers and pay less for raw materials. Could you receive money that is owed to you in a shorter number of days? Ensure that you have a good relationship not only with the business owner but with the person in accounts responsible for issuing your money, as this is where the bottleneck often occurs.
When was the last time you counted the number of days of stock you are holding? Release cash back into your business by not holding as much stock. I often find that companies will hold stock for that 'just in case' situation which seldom occurs. By operating with a 'just in time' mind-set, you will find that it is very easy to halve your inventory days hence freeing more cash in your business.
The benefits of focusing on the management of your cash as it moves in and out of your business not only has the obvious result of you being more aware of your current and future cash position, it also increases the business acumen of yourself and your team which leads to better decision making as you continue to grow your business.
While it is essential to keep a focus on growing top line revenue which makes everyone feel good and drives the ego of the organisation, a daily focus on your cash position is vital to ensure that you do maintain consistent sources of cash to maintain your growth. In fact we would recommend that you receive a daily report showing what cash has come into the business and what cash has gone out and your current cash balance.
Mike Hoff is a Certified Gazelles International Coach and Founder & CEO of Mike Hoff Consulting.
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