We have all heard the statistic; 80% of all small businesses will close their doors within the first 5 years. And a further 50% will close in the next 5 years. These numbers were generated from a study conducted by the Commonwealth Bank in Australia in 1997 but similar statistics apply here in Ireland.
Here is the really interesting bit though – the common thread in all of these closures is lack of cash flow or in other words an inability to meet the monthly expenses and payments required to maintain the business.
Most people in business and have been for any length of time will be familiar with the situation. Bills are mounting up, sales seem to be diminishing, customers don’t seem to be returning to buy more and your nightly sleeps become punctuated with being wide awake imagining all the worst possible scenarios. Stress levels increase, family life suffers, health suffers and generally speaking the world is not a good place to be.
In working with many business owners over the years and even in my own businesses there has been time when lack of cash flow becomes an issue.
The question arises as to how do you move through it, get back on track and start building a profitable, stable business that provides the lifestyle you deserve?
Well here is the first thing to do. Stop using all the wording that I have bolded in the first few paragraphs. Without exception anyone that I have worked with who is experiencing monetary challenges has been inflicted with “stinking thinking”. Mostly their thoughts are on lack of money, bills, lack of sales and scarcity. We move in the direction of our dominant thoughts. The reality we are currently experiencing is a reflection of what we think about most often. Want good cash flow? Think good cashflow thoughts. That is sales opportunities, payment terms, increased profit margins, return customers, investment opportunities.
In other words GET POSITIVE. Set a target of when you will be out of this cash flow restriction. Spend half an hour every morning listening to positive mindset audio material or reading positive mindset books.
Secondly get in the mindset of taking ACTION. Again without exception people who experience cash flow limitations are relying on habits that are not serving them well in business. Lack of Action means you will start to WORRY. WORRY breeds FEAR. This is what will keep you awake at night. Taking ACTION will improve your mindset.
Focus on being Income Heavy not Expense Heavy in your business. Place the priority on everything that will generate sales and leave the other activities to later on or after hours. Be prepared to work half days………7am to 7pm
If Cash flow is CRITICAL then ACT NOW. Prepare a plan of Action including
• Calculate break-even points for business and all sales people
• Reduce non-income generating expenses by 10%
• Increase prices
• Review wages as a percentage of sales. If appropriate move people from salaries to performance based pay
• Increase conversion rate by training the team in sales
• Set a target for increasing your average transaction value and then put in place five strategies to help increase it
• Ask for help
o From suppliers – would they accept a payment arrangement for the next six months
o From team – explain the situation to them and ask for them to rally around and put in 110% effort. Ask for commitment from them to increase productivity and reduce expenses
o From bank manager – consolidate loans including credit cards to reduce interest payment
• Reduce all debtors by following a rigid system with strict time lines for every escalation point. The choice of the right person for this role is also key to its success
• Reduce owners drawings to minimum amount
• Organise a sale to move slow moving or outdated stock
• Upsell or Cross Sell
• Sell like crazy
• Set short term (90 day) sales goals and get buy in from the whole team
• Sell unwanted assets
• Understand Cash Gap concept
• Calculate gross profit margin on everything you sell…………and then focus on the items which are bringing in the most total profit (volume x margin)
• Categorise customers into ABCD. Focus on the profitable A’s and B’s with your advertising.
Just remember that you are not the first person to experience tight cash flow in business and you definitely won’t be the last.
This is by no means an exhaustive list of strategies to improve your cashflow. If you would like to learn more about powerful strategies for small to medium business call your local ActionCOACH business coach Fergal Keane on 01 8241816
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