Cash Flow Problems in YOUR Small Business?

Cash flow is king (or queen) in a business. As any small business knows, having positive cash flow running through your small business is the key to success. If you don’t have that, you have a major cash flow problem.

We cannot pay our staff, ourselves and our monthly bills on profit. Our bills are paid from positive cash flow. How stressful is it not having enough money in the bank at month end when staff wages and salaries are due and there is not enough money in the bank? It can be a nightmare for a small business owner!! I know from personal experience when I was a young entrepreneur. We had great customers, but at times, due to their internal systems it took a long time to get paid. At times, cash flow problems were constant.

In accounting terms there is a little formula that can tell a small business owner how successful they are at collecting money from their customers. It’s called the ‘Accounts Receivable Ratio’ and is calculated as follows:

Accounts Receivable Ratio = Total Sales for the Year / Total Accounts Receivable Outstanding

So, if your total sales for the year were $500,000 and you currently have $100,000 outstanding in Accounts Receivable, then your Accounts Receivable Ratio would be $500,000/$100,000 = 5.

We then take the 5 and divide it by 365 days per year, so 365/5 = 73.

What does 73 mean? It means that on average your customers are taking 73 days to pay their accounts. That is scary, as that statistic will seriously affect your small business cash flow.

You see, if your terms of business with your customers are for your accounts to be paid at 7, 14 or 30 days, then by your customers taking on average 73 days to pay you, that is much longer than your terms of business with them, and therefore is detrimental to the success of your small business. Therefore your, will have a cash flow problem. I promise, you will run out of cash flow if that payment history continues.

That type of Accounts Receivable Ratio could also indicate that your customers do not have a healthy regard for your small business and its success. It could also mean that your customers are not good quality and they may also have their own business issues such that you may not collect the payment at all. How much of your Accounts Receivables are you writing off as bad debts each year? Perhaps it is time to find better quality customers that have more respect for you and your business. Writing off bad debts creates an even bigger cash flow problem, as you are receiving less cash into the business than you would originally forecast.

What should you do if your Accounts Receivable Ratio is poor? The first thing is to establish a plan and internal systems and process within your small business to ensure you or someone on your team is politely following up with your customers soon after the accounts are sent to ensure they have received it, and have arranged payment. There is nothing wrong with asking your customers the question: ‘When can we expect to receive payment?’

If you do not follow up with your customers, there will often be no urgency on their part to make payment to you, regardless of your terms of business with them. Remember, it is the squeaky wheel that gets the oil, so don’t be afraid to continue contacting your customer in order that you get paid.

Take control of your business and create systems and processes to enable your customers are followed up with to ensure your accounts are paid on time, or at least close to the due date. In doing that, you will eliminate one area of business challenge that could be exacerbating your small business cash flow problem.

If you would like to learn more on how to address the cash flow issues in your business, then please go to www.adelemclay.com/free-resources and download my SPEARHead System™ – 50 Strategies For Supercharged Small Business Cash Flow.

Could some guidance from me be helpful to you? If so, please arrange a free 30 mins Skype strategy meeting with me. Here’s my calendar to book a meeting. I’d love to support you in some way to gain ‘seductive clarity’ in any aspect of your business or life.

Other articles on Small Business Cash Flow:

Small Business Cash Flow – The Ultimate Guide
Small Business Problems – Why are YOU in Business
Small Business Cash Flow Problems
Cash Flow in Business
Cash Flow Projections – Important in Business?
Projected Cash Flow – Relevant in Business?
How to Solve Cash Flow Problems: Inventory Turn

Small Business Cash Flow Problems

Positive cash flow is the life blood of all businesses. Without it they die – eventually!! Overstating the issue of business cash flow problems, you say? I think not! Without positive cash flow, a small business has big cash flow problems; lack of solvency being the likely key business issue.

Let’s be clear what I mean for a moment. Positive cash flow is where cash received into the business exceeds cash paid out, and negative cash flow is the opposite. It is where cash paid out by the business exceeds cash received by the business. Cash flow problems arise when a business has negative cash flow – more money going out of the business than is coming in.

Consider the ‘life blood’ analogy further. We all have blood moving around our bodies. If we lose most or all of our blood, we die!! It is the same in business. If a business has no cash within it, it will eventually die! I learnt from my own experience in business as a young entrepreneur, that one cannot pay bills, staff salaries and oneself on profit alone!

Profit is exceptionally important to business, and positive cash flow is too. They are two of the most critical drivers of a business. My favourite phrase in business is:

Turnover = Vanity; Profit = Sanity; Cash flow = Reality!!

The key transactions that impact cash flow are:

Sales (cash and credit sales)
Purchases (stock and business expenses)
Business loans (new loans and repayments)
Business assets (buying and selling assets)
Investments (repayments and new investment)

In simple terms, to be financially successful, a business needs to be cash flow positive. That means more cash needs to be coming into the business than is being paid out. Look at this simple example of a profitable business.

Let’s assume Smith’s Limited has just established taking a new product to market where sales will be $1,000 in month one, and then will double each month thereafter. Customers are given the fairly standard 30 day payment terms. However, Smith’s Limited has to buy its stock for cash, as it is a new company with no credit history with the supplier. The stock will cost 60 percent of retail price. General business expenses will be 20 percent of gross income each month, and are paid by month end, at the latest. Look at the profitability and cash flow effects of this opportunity after six months in business as shown in Tables 1 and 2.

	Month 1	Month 2	Month 3	Month 4	Month 5	Month 6	Total
	$	$	$	$	$	$	$
Gross Income	1,000	2,000	4,000	8,000	16,000	32,000	63,000
Less COGS	(600)	(1,200)	(2,400)	(4,800)	(9,600)	(19,200)	(37,800)
Gross Profit	400	800	1,600	3,200	6,400	12,800	25,200
Less Expenses	(200)	(400)	(800)	(1,600)	(3,200)	(6,400)	(12,600)
Net Profit	200	400	800	1,600	3,200	6,400	12,600

Table 1 – Smith’s Limited – Profit and Loss Statement for Six Months

	Month 1	Month 2	Month 3	Month 4	Month 5	Month 6	Total
	$	$	$	$	$	$	$
Cash In	0	1,000	2,000	4,000	8,000	16,000	31,000
Cash Out	(800)	(1,600)	(3,200)	(6,400)	(12,800)	(25,600)	(50,400)
Cash flow	(800)	(600)	(1,200)	(2400)	(4,800)	(9,600)	(19,400)

Table 2 – Smith’s Limited – Cash flow Statement for Six Months

What do you notice? The profitability of Smith’s Limited is $12,600 profit for six months. However in the same period, it also has a negative cash flow of $19,400, which means more cash is going out of the business than is coming in. If this was a real life situation, Smith’s Limited would have a major cash flow problem, especially if it had limited cash flow reserves in the bank. If the company is relying on a bank overdraft to fund the negative cash position, it could be scary for the company, as negative cash flow is the same as bank overdraft, and it is continuing to get bigger each month.

In this situation the accountant will say, ‘Well done for a start up business’, but the bank manager may well be saying, ‘No, we won’t extend your overdraft further’ or worse, ‘We are cancelling your overdraft’.

While this is an imaginary example, it is designed to demonstrate the point that if cash is not managed carefully, a successful business can be crippled and die!!

Reading is one thing, but implementation is another. Please look at your own business’ cash flow, and ask yourself, ‘Do I have cash flow problems in my small business?’. Be honest as your business relies on you to be so!

Ensuring your business is consistently cash flow positive will help you to create a financially strong and viable business, and it will help you sleep at night, not having to worry about where the cash is coming from to pay yourself, your staff and business expenses. Now, that sounds good to me!

Other articles on Small Business Cash Flow:

Small Business Cash Flow – The Ultimate Guide
Cash Flow Problems in YOUR Small Business
Cash Flow in Business
Cash Flow Projections – Important in Business?
Projected Cash Flow – Relevant in Business?
How to Solve Cash Flow Problems: Inventory Turn
Small Business Problems: Why are YOU in Business?

Is Customer Service YOUR Key to Business Success?

‘The customer experience is the next competitive battleground.’ – Jerry Gregoire, CIO Dell Computers

I believe that delivering exceptional customer service is the ultimate key to business success, whether you are a large or small business. After spending a lot of time and money winning a new customer, why waste that effort by not looking after and nurturing them so they stay loyal to you forever? In the competitive market that most businesses operate in, customer service often becomes the differentiator between businesses.

I admire the success of the Wal-Mart company. Sam Walton, the Founder of Wal-Mart, said: ‘The goal as a company is to have customer service that is not just the best but legendary’. I wonder how many companies focus on ensuring their customer service is legendary?

Often it is the simple things:

Acknowledging your customers.
Following up with them and treating them as individuals, not a ‘number’.
Admitting it when things go wrong and quickly fixing the problem.
Asking for feedback, and actioning where appropriate.
Going beyond the call of duty in small but noticeable ways.

Lee Resources in 2010 said that attracting a new customer costs five times as much as keeping an existing one. That is a scary and costly statistic, and if true, will directly impact the bottom line; if you are losing customers and having to spend time gaining new ones, your profit will be reduced! Another relevant statistic is from Customer Thermometer, where in 2012 they stated that companies that prioritise customer experience generate 60 percent higher profits!! That is money to spend in more productive ways in your business, or perhaps to take as drawings from your business to support you in the lifestyle you want to have with your family.

In all the businesses I have owned, managed or coached in my career, superior customer service has been the cornerstone to success. It has always been ingrained into the psyche of all team members too. After-all, customer service, to be successful, MUST be delivered consistently throughout all activities across a company.

Let me share a recent personal experience I had, which demonstrates now NOT to do customer service! My husband and I are property investors in the UK, and we needed to purchase appliances for one of our newly renovated investment properties. As long time customers of CurrysPC World – a major UK appliance retailer – we visited a local store and bought the required appliances (£1300 in cost). Throughout our time at the store the customer service was excellent, such that we opened an account to make our purchases easier in future. The appliances were delivered to the investment property a few days later, and while delivering, the delivery company significantly damaged walls, carpet and vinyl. I notified Currys that afternoon, and was told I would hear from someone within 48 hours to address the issues. I began tweeting my dissatisfaction with Currys after about five days of waiting, and it was only then that their social media people made contact. Eventually I got an email from Currys two weeks after the initial complaint, telling me that their outsourced delivery company was responsible and would make contact with me within seven days. As you might imagine, I emailed Currys back telling them I expected Currys to resolve my complaint and not the delivery company, and that I would continue to tweet my experience until they had paid me approximately £350 so I could get the damage repaired. As of today, I am still waiting, so I will continue to use social media to complain. In the meantime, we have spent £1500 buying new appliances with John Lewis (another UK appliance/department store) for yet another investment property. Currys has lost our business forever, and I am telling everyone about my poor experience!! Ironically there is a very successful appliance company in New Zealand (where I am from) whose mantra is: ‘It is the putting right that counts’…. shame Curry’s doesn’t have the same approach to its business.

So, my message to you is to focus on delivering superior customer service all of the time to your customers and you will enjoy long time customer loyalty and more profit in your business. If and when things go wrong (which they will do from time to time), sort them out quickly and respectfully, and you will continue to retain your customers.

Finally, from Jeff Bezos, CEO of Amazon.com ‘If you build a great experience, customers tell each other about that. Word of mouth is powerful.’

If you would like support towards your business success, please visit www.adelemclay.com/free-resources and download all/any of the free resources are of interest to you.

Other articles on Branding, Marketing and Pricing:

Increase Your Prices and Make More Profit
Do You Compete on Price? Bad Business Decision!!
Creating Superior Customer Value – do you do that in your business?
Using YouTube for Finding Customers
Which are Your Most Profitable Customers?
Who Wants High Customer Retention?
Finding Customers via LinkedIn
What is a Customer?
What is Business Marketing?
What’s your Personal Brand?

Small Business Problems: Why are YOU in Business?

I have coached and mentored many small and large businesses to improved financial performance over the last 20 years in several countries, along with a number of charities, and I have received a variety of answers to the question: ‘Why are you in business?

So, I ask you. Why are YOU in business? Think about it and make a list of why….

Are your answers similar to those I have heard over the years:

To be my own boss.
To live my dream.
To bring my product or service to market, as everyone will need my product/service.
To help others.
To have a successful business.
To make a difference, and to make my customers happy.
I am the ultimate entrepreneur and couldn’t work for anyone else.
To earn the money I am worth, rather than receive a salary working for someone else.
To control my life.
To contribute to the lives of those who are less fortunate.
To deliver social/community programmes.

If you answers are any or some of the above, while they are good and at times noble reasons for being in business, they are NOT the reason you are in business. There is ONE reason and ONE reason only as to why you are in business…… and that is:

TO MAKE MONEY…. and hopefully, lots of it!

There is no other reason to be in business. If you have any other reasons for being in business, they must be secondary, otherwise you will have small business problems!

Yes, by being a financially successful business or charity, you will achieve some or all of the above points, but they are not the principle reason WHY you are in business. They are the results of being financially successful in business.

Over the years I have seen so many small businesses not focused on money – the cash-flow and profit (or lack of) in their business… a lack of focus on these areas lead to small business problems. The net result is that they are unsuccessful and fail, or struggle, with the owners living a ‘hand to mouth’ existence….. and, not achieving the dream they have set for themselves and their families.

In my opinion, there has never been a better time to be in small business…. as Lord Digby Jones, a UK based businessman, and UK Trade Ambassador recently said: ‘It is small business that will lead the UK economy out of recession in the coming months’. Whichever economy you are in, I wholeheartedly agreed with the sentiments. But, small businesses will only lead economies out of recession, if they themselves are financially successful.

So watch out for my key strategies to make significantly more profit in your small business. In the meantime, get focused on making money… that is the only reason why you are in business. Successful businesses leads to having fun in business. Marginal or unsuccessful businesses lead to constant small business problems, challenges and issues. Which would you rather have? I know that the answer is for me!

As Warren Buffett, the renowned investor says: ‘Rule No.1 – Never lose money. Rule No.2 – Never forget Rule No.1.’

Other articles on Small Business Cash Flow:

Small Business Cash Flow – The Ultimate Guide
Cash Flow Problems in YOUR Small Business
Small Business Cash Flow Problems
Cash Flow in Business
Cash Flow Projections – Important in Business?
Projected Cash Flow – Relevant in Business?
How to Solve Cash Flow Problems: Inventory Turn

Using YouTube For Finding Customers

Is YouTube relevant for Small Business Entrepreneurs?

I am a recent (and initially reluctant) convert to using YouTube as a way of marketing my business – Small Business Huge Success™ to the worldwide population of small business entrepreneurs that I am seeking to attract to my online business.

However, I have learnt that, if done correctly, YouTube supports all my other marketing activities by helping me to build ongoing Visibility and Credibility with my target audience. Audiences can be highly targeted via YouTube – did you know that? You can market to a very local audience if your business is local rather than national or international. YouTube is the marketing engine of the future, and the exciting news is that it is still in its infancy, so early adopters will reap the benefits. Let me explain.

Here are some staggering facts about YouTube.

What YouTube Itself Tells Us

YouTube has more than 1 billion unique users visiting it each month.
Over 6 billion hours of video are watched each month on YouTube – that’s almost one hour for every person on Earth!
100 hours of video are uploaded to YouTube every minute!
80 percent of YouTube traffic comes from outside the USA.
YouTube is localised in 61 countries and 61 languages.

What Marketers Say About YouTube and Video

One minute of video is equal to 1.8 million words.
One third of all online activity is spent watching video.
One in two consumers say video has influenced a purchase decision.
87 percent of online marketers use video content.
Inclusion of a video in an introductory email can increase the ‘click-through’ rate by 96 percent.
60 percent of visitors watch the video before reading the text on the same webpage.
68 percent of the top 50 internet retailers use videos on their websites.
YouTube accounts for 28 percent of all Google searches.
The brain processes video 60,000 times faster than text information.
Consumers will stay on a webpage seven times longer if it has a video.
YouTube is the Internet’s second to largest search engine.
41 percent of consumers are more likely to share product videos than product content.
80 percent of internet users can recall a video they watched last month.

These are staggering statistics, which heavily influenced me to explore YouTube as a marketing tool. How are you feeling about marketing your business via YouTube? Scared? Don’t know where to start? Not relevant for you?

I can promise you I have experienced all those emotions, yet I have also overcome them. So, I strongly urge you to seek out the professionals and learn more about how you can use YouTube to gain online Visibility and Credibility for your business.

Marketing for business and the ways in which businesses will be finding new customers is going to change markedly, and soon! The Internet and search engines are how consumers are starting to find their service providers and this approach to finding service providers will increase markedly very soon. As a small business entrepreneur, that means you need to be asking yourself:

How am I going to find customers for my business?
How is my business represented on the Internet?
Can my business be found on the Internet?
Is my business building its Visibility and Credibility via the Internet?
How can my business embrace YouTube as a technology of the future?

Please embrace having your business represented online via YouTube. It is the technology of the future. Be prepared to learn, and to be outside of your comfort zone. Push through your discomfort, and you will be rewarded. ‘Feel the fear and do it anyway, and the death of that fear will be certain.’ Be prepared to teach a lot of content for free via YouTube about what it is you do in your business. Help your audience understand how good you are at what you do.

I promise you, if done correctly your business profits will soar over time as you will be attracting or finding more customers for your business. How great does that sound?

If you would like to learn more about finding more profitable customers for your business, please download any of the FREE resources that may be helpful to you at www.adelemclay.com/free-resources

Other articles on Branding, Marketing and Pricing:

Increase Your Prices and Make More Profit
Do You Compete on Price? Bad Business Decision!!
Creating Superior Customer Value – do you do that in your business?
Which are Your Most Profitable Customers?
Who Wants High Customer Retention?
Finding Customers via LinkedIn
Is Customer Service YOUR Key to Business Success?
What is a Customer?
What is Business Marketing?
What’s your Personal Brand?

Creating Superior Customer Value…Do you do that in your Business?

Recently I re-read a book by Dr Ian Brooks, a New Zealand management consultant who specialises in supporting companies to become Number One in their market. The book is called: ‘Second to None’ – 6 Strategies for Creating Superior Customer Value. A great read (see Dr Brooks’ website below to purchase the book).

In summary, Dr Brooks’ six strategies from his book are¹:

Strategy 1: Focus On Value	If business is the art of creating value, then everyone in your business must understand the concept of value and everything you do must be directed towards creating value in the eyes of your customers.

Strategy 2: Compete On Value, Not Price	Resist the temptation to compete on the basis of price alone. It is an inadequate strategy at best and a suicidal path for both you and your competitors at worst.

Strategy 3: Look Through Your Customer’s Eyes	Since value exists only in the eyes of your customer, you must learn to see the world through your customer’s eyes. Most companies do not.

Strategy 4: Make Your Customers Successful	In this tough marketplace servicing or even satisfying your customers is not enough. Studies show that even happy customers switch to another supplier at a very high rate.

Strategy 5: Reduce The Costs	To compete and win in this crowded market, you need to be a low cost supplier, but instead of reducing your price, try to reduce the other four main costs that customers pay to obtain your products and services.

Strategy 6: Give Them Something Extra	In addition to lower the costs, increase the benefits you offer your customers. Give them something extra – at no extra charge – and delight them!

So how is your business faring in relation to these strategies? Business is tough and hugely competitive…. all businesses need to stand out. Often it is the simple things that help to stand out. As the saying goes, it is better to do 10 things 10 percent better, than one thing 100 percent better.

As a business owner, how about looking at the various elements of your business and consider if you can apply Dr Brooks’ ‘Second to None’ Six Strategies for Creating Superior Customer Value into your business.

Note 1: Reproduced from page14, Second to None – 6 Strategies for Creating Superior Customer Value. Dr Ian Brooks. Nahanni Publishing 1997. See www.ianbrooks.com to purchase.

Other articles on Branding, Marketing and Pricing:

Increase Your Prices and Make More Profit
Do You Compete on Price? Bad Business Decision!!
Which are Your Most Profitable Customers?
Who Wants High Customer Retention?
Finding Customers via LinkedIn
Is Customer Service YOUR Key to Business Success?
Using YouTube for Finding Customers
What is a Customer?
What is Business Marketing?
What’s your Personal Brand?

Making BIG Business Profits in 2014

The beginning of the year is often exciting in business as new goals are set for the year, which leads the entrepreneur to have new excitement and energy for their business. Goal setting in business happens in many different ways, either formally via writing a business plan, writing a set of bullet points listing goals, or ‘head based’ desires on the part of the owner to have a more successful business in 2014.

This article is not about goal setting, rather it is about helping you to substantially grow your business profits by focusing on what is occurring within your business at present. So, let’s get started.

I believe there are 10 key areas of business that an entrepreneur should be looking at to aid in the financial success of their business. What are they?

Cash Flow Management – I have a saying in business: Turnover is vanity, Profit is sanity, Cash flow is reality. Many small businesses do not have strong systems in place to collect outstanding invoices from customers after the work has been done. What systems have you implemented in your business to ensure you get paid by your customers in a timely way? Also, do you fully embrace active cash management across your business by managing your accounts payable and negotiating payment terms with your suppliers? How about inventory turns? Do you actively control the amount of inventory you hold at any one time? Poor cash management leads to the deterioration of the business, and at times, failure.

Monthly Financial Management – Do you know the costs of running your business each month relative to the turnover you are generating? Many small businesses have a ‘cash in/cash out’, receipts and payments mentality when running their business. They do not have monthly management accounts to help them manage their business. Year end accounts are only useful to determine the profitability of your business and how much tax is to be paid. They will not help you to manage your business during the year. So, how about getting your accountant to work with you throughout the year, producing monthly management accounts that you can analyse together? Monthly analysis will enable you to make improvements in your business during the year to enhance your business’s profitability.

Product and Service Profitability – Another element of financial management is understanding the profitability of all the products and services you offer to your customers. The most expensive product or service you sell to your customers may not be the most profitable to your business. How about learning about product and service profitability, working out which are your most profitable, and selling more of those to your customers. That strategy alone will have a measureable impact on your business’s profitability.

Customer Profitability – Do you know who your most profitable customers are? Most business owners do not. Many businesses aim to service any customers that come their way without thinking about whether they are going to be profitable customers. So, learning how to work out customer profitability is critical to making more profit in your business.

Differentiating your Product and Service Offering – Do you sell all your products and services as one offering or do you differentiate them according to what your customers need and can afford? Do you make offers to your customers to cross-sell, up-sell, down-sell and frequently sell your products and services? Those businesses that have a strategy in place to differentiate their product and service offerings are making BIG profits.

Pricing – How about increasing your prices to your customers? This is a touchy subject as many business owners think that they will not survive if they increase their prices. Studies have shown that only 9 percent of customers move away from a supplier due to price increases, yet 82 percent will move away to a new supplier due to perceived indifference and unresolved conflict with the original supplier. It comes down to value. How much value do you think you are offering your customers for the prices you charge, and do they feel that they are really important to your business?

More Customers – All businesses want to grow their customer base, but many small businesses do not have a strategy in place to attract new customers? How are you marketing your business? How much networking are you doing? Most markets are crowded, so how are you standing apart from your competitors, so that when a potential customer hears of you, they will come to your business for the product or service you are offering? Get this right and you will have a constant funnel of customers coming your way.

Systemising Your Business – Regardless of whether your business is just you, or you plus your employees, is your business systemised and automated in a way that your customers receive streamlined service? If not, then you are offering what I refer to as ‘random service’, which is unpredictable and not able to be replicated by your staff. McDonald’s doesn’t make the best hamburgers in the world, but they developed arguably the best systems in the world to deliver their products to their customers. How does your business measure up? If your customers return more than once to buy from you, will they get a consistent experience with your business? If not, then your business is not systemised.

Lifelong Learning – I am a ‘lover of lifetime learning’. Are you? There is so much to learn about business and it is easily accessible and often free via the internet and networking, so there is really no excuse for any business owner not to continue learning. I believe we can never learn enough, and that there is always something to learn. How about embracing the idea and developing more knowledge in business to support your success? Time and time again we hear from the world’s most successful entrepreneurs, and on every occasion they say that embracing ongoing learning was key to their success.

Mindset – Do you truly believe that you will be successful in business, and that you will topple any hurdle that gets in your way? If you do, then you will be hugely successful in your business. If not, then how about spending time evolving your mindset towards believing that you can achieve anything you want in business and life? Once the belief is set, you will be invincible. I just love the quote: “The future belongs to those who believe in the beauty of their dreams”. ~ Eleanor Roosevelt.

So, that’s it. My top 10 strategies to help you make Big Profits in your business in 2014. I hope you embrace the strategies to support your HUGE business success.

If you would like to learn more about finding more profitable customers for your business, please download any of the FREE resources that may be helpful to you at www.adelemclay.com/free-resources