Cash flow is King for SMEs

It can sometimes seem that there is never enough time in the day, or enough money, to achieve what you really want to with your businesses. When both time and funds reach a pinch point, the pain that comes with being a business owner can bring about stress, fatigue, as well as emotional and financial pain.

All business owners and leaders will say they need more money to be able to take certain actions or take the next step with their business’ progression, but it’s something that can make or break an SME. It also has a very real-world and personal impact on the business owner, so it’s one of the most common areas of stress and something, as a coach, we work on a lot with clients.

Two people woth their heads down on their laptops

Focus on your cash cycles rather than turnover

Very often decisions about business investment are based on turnover figures. We need to be turning over £X amount to then be at a scale to invest in Y. It is an important number to look at and is the headline figure for business performance. It’s the biggest and most impressive number.

However, in reality, it should be about the profit figure. From our experience, business owners could often improve their understanding of their own business’ cash cycles to be able to make better investment and management decisions.

By having a view of your cash cycle, you can see any cash gaps in your business, see which services or products are the most profitable, and then make sure that you are utilising the valuable hours of your team to the best of their abilities. This also includes applying yourself to the aspects that give you the greatest return per hour per product/service.

A good example of the impact of this lack of financial clarity – and then gaining it – is  a construction business that we previously worked with. They knew how much they sold, and to a certain degree the progress on their current contracts, however, they weren’t very tight on their invoice schedule.

They had £45,000 in outstanding invoices owed to them. With a few relatively quick changes, we managed to reduce that to less than £10,000 within the space of roughly six weeks. In a remarkably short space of time, they had improved their cash flow by £35,000.

By having a clear view of what’s working with your cash flow, you may be able to find money that you didn’t realise you had.

Maximising the value of a sale/client

Let’s say you are a hairdresser. You can focus on your more profitable services, such as colouring hair or specific treatments. There are only so many hours in the day available, which does limit your ability to increase turnover any further, but if we focus on profit there is more potential to grow.

Making sure you meet all of your customers’ needs is important to maximising the value of each customer on each visit.

Take a scenario where you have a client with curly hair, it’s a damp December day and the damp has created frizz. Perhaps consider asking questions about how their hair is affected by the weather.

Get chatting to them, not in a full-on salesman mode, just a simple, friendly chat to find out if this is always an issue and if they have ever used something to prevent it.

By opening the conversation around a problem you have identified, the client is very likely to open up to you, discuss what products they use, and as you are the expert you can advise on a product that you sell, that would be more suitable.

This is the perfect opportunity to increase the profit margin, via an upsell, simple to do, and adds profit potentially to every single purchase.

The turnover is there from regular clients, but there is still potential to increase profit, without having to go into ‘salesperson mode’. You are genuinely assisting the customer with a problem they have.

Ensuring business profitability is not dependent on the business owner

There are a range of factors that go into the valuation of a business, and it isn’t purely down to turnover or even profitability. While these do play into it, consistency of profitability is the important factor as it demonstrates the likelihood of future profitability.

This in turn leads to the business’s ability to create leads, convert them into sales, nurture them into a project/customer, or retain business. All of these aspects will affect the valuation, but the one thing that comes above all of this is if your business is reliant on you remaining tied to your job.

If the business is dependent upon you to achieve consistency in profitability if all the relationships are with you, and if you’re the marketing person, salesperson, and the main one delivering the service, then you leaving would not be profitable for the business.

This demonstrates that even though the business is profitable, you are too much of a valuable asset of the business and cannot leave it.

You need to be able to pass your job to somebody else who can do what you do, or for a business to be able to hire somebody to fulfil your role. If it’s not profitable enough to pay that third party, then that will diminish the value of the company substantially.

The aim here is for consistency of profit, a stable cash flow with no peaks and troughs, and the ability of the business to run and continue to grow without too much direct involvement of the owner.

Graph showing increase with person in background

The process for reducing your business financial worries

There are lots of tactics and strategies you can use to reduce your financial concerns and grow a business – we’ve talked through just a few of them. Rather than tactics, there is also the process by which you set up your financial controls, reporting and monitoring that can be of great benefit to mitigate concerns and enable growth.

Aligned to each of the stages of business:

  1. Start-up: Start by working out what your core business model is, and which activities are both profitable and has positive cash flow. From this, work out how you can do those activities that are consistently profitable and scale it up beyond your own direct involvement.

  2. Growth: The next step is to identify how your team will progress, the timing of cash availability and the stage at which the company is profitable. Gradually build the team and ensure they are focusing their efforts on the most profitable activities.

  3. Independence: This stage is all about having a well-trained team that doesn’t require too much supervision. Utilising efficient technology that will help systemise the workload for your team, again allowing them to focus on the most profitable activities they can be undertaking.

  4. Exit: Tie it all together so that management and leadership functions are succeeded before you try and exit a company. Make sure there’s enough structure in place that it doesn’t require your input day to day or week to week too much and make the company a saleable asset rather than a saleable job.

How a business coach help you

There are hundreds of ways that business owners can get help from a growth coach when it comes to relieving financial concerns.

We ourselves have identified 10 main areas of business that require attention in order for businesses to develop, and three main levels of progression. Depending on where your business is at across any of these points, the assistance and support you need will vary.

That is one of the great things about a business coach, its specific, tailored and just right for you. There are of course common models, approaches and processes but how they are used and applied, and in what combination, is where an expert coach’s guidance makes the difference between an average business and a great one.

Book your complimentary business review today and receive the help you need to find that extra cash to help your business!

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Cash flow is King for SMEs

It can sometimes seem that there is never enough time in the day, or enough money, to achieve what you really want to with your

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