How to improve your finance and cashflow
Recently, George Germanos made a presentation to a large number of businesses on ways to improve business finance and cash flow. Below are the notes and the power point presentation.
I am often asked, what makes a successful business?
My response is the business owner and management.
For this presentation, we will consider management and business owners as one.
Next Slide – Hard Work Vs Smart Work
In this image, we see a bird trying to survive – Obtaining water out of a bowl.
The first image shows the bird trying to raise the water by putting the stones in the water to raise its level.
The second part shows the bird with a straw.
In the first image, the bird may dehydrate itself before it gets water.
Cash, or Barter, is now required by people for survival. Although it is not a life necessity, however it is now a part of everyday life. Historically, tools, weapons and food were used as forms of cash. Cash is a means of rewarding effort.
Are you working in your business the smartest possible? Or are you dehydrating yourself of cash?
As a business owner or manager, you should be working on the business, not the business working you.
A key issue with business owners is that unfortunately, they treat the business as work, they treat themselves as employees. A business owner’s role is to not prepare the product or service that a business outputs, but to run the business that creates the output.
Next Slide – The role of a business owner
Although funds may be tight initially at start-up, a business owner should prepare a plan from day one of where he sees the business to be.
There are two models of business:
- A business where the business owner is very closely aligned with operations and doing the work in business, i.e. a sole trader, or a business owner with one or two employees
- A business which has staff and departments.
From day one, you will need to define what type of business you wish to be. If you are an established business, than define it from now! Will you be able to do what you are doing when you near retirement? Can you handle the physical work and the hours you put in to your business?
A successful business is one where the owner puts in steps to ensure the successful running of the business without the owner having to be in the business, rather than just the production of its end item.
Next Slide – Look at your numbers
Looking at your numbers does not mean that you have to be an accountant. There are many ways you can look at your numbers, and the best way to do it, is the way that you are most comfortable with.
You can look at your numbers by:
- Looking at your Profit and Loss
- Speaking to your bookkeeper or accountant
- Bank Balance?
Next Slide – Regularly
Review your numbers, daily, weekly, monthly and yearly!
Next Slide – You do not need to be an expert in Numbers
If you look at your numbers enough times, they will start to make sense.
You will start to recognise trends.
The numbers do not even need to be financial – they can be key indicative figures of business growth and success such as the number of leads, the number of conversions, days taken to complete work, etc.
Set goals of where you want your sales to be for without goals, you aim endlessly to nowhere.
Next Slide – What to Look For
Items to keep an eye out include:
- Key Trends
- Changes in sales, by week, month and year
- Bank Balances
- Financial items – Inventory Levels, Debtors, Loan Balances, Overhead expenses, Wages
- Number of Leads, Conversions and sales
- Days for completion.Cash flow is the second biggest problem in business after obtaining sales. More often than not, I am told that business owners need finance to grow their business.
- There are the traditional forms of finance:
- Next Slide – Forms of Finance
- From you, the business owner. These may include mortgage on your house, your savings, borrowing from family. Although loans from you may be a cheap form of finance, it is not recommended as businesses come with risk and therefore this finance is prone to being lost. Let’s face it; there are risks in business such as not making enough sales, having too high debt, taxes and the possibility of law suits.
- Banks – I would recommend that you speak to your accountant and have a good mortgage broker to help you with bank finance. Some bank employees may see their role as simply processing applications and are limited to their bank only. A good accountant and broker will help prepare your financials and paperwork as a case to make your business look more appealing to the bank. There may also be times where the accountant can make adjustments to your numbers to make them more appealing to the banks, legally!
- Investors – They tend to be a more expensive form of funding and investors tend to want greater control and/or oversight over your business. Recently, the government allowed tax concessions for investors to invest in new start-ups.
Next Slide – New and Old Ways of Funding
- In today’s day and age, tech start-ups, innovative companies, research companies, charities and others can turn to the internet for funding. Organisations such as Chuffed, Kickstarter and OZ Crowd are platforms where individuals may donate a few dollars to a project they wish to see succeed. Bring millions of people together, and you may have a good source of funding.
- As mentioned previously, money never was and never will be the only form of funding. Have you looked at offering your services for free to your mechanic, marketing agency and other service providers in return for their services? This may be a daunting topic to approach but may be worth a try.
Finance in your own business
- Stock levels – Stock ties up your money. Review your stock levels regularly to see if you have too much stock or if you can move stock on. Sometimes, offering sales and discounts to sell stock will help you get the cash you need.
- WIP – Work in Progress is a white collar form of stock. Again, review your WIP regularly to see what you can invoice. If you cannot invoice the full job, consider invoicing as an interim invoice.
- Debtors – Debtors are using your business as a free loan. Consider:
- Reducing your credit terms
- Offering discounts for early payments
- Add a penalty or charge for late penalties
- Ensuring you have strong and visible credit terms as it will be difficult to impose interest, charges and debt collection fees if they are not outline in your credit terms
- Lodging a claim in the small claims court.
Next Slide – Should you invest in investments or business?
As mentioned earlier, businesses come at a risk.
Diversification is key – consider using your business as a way to fund your personal investments so that should anything happen, you have investments outside of your business such as property or shares.
Having said that, you should not look at your business only as a way to produce income, but you should also be looking at it as an asset. A profitable business could be sold when you decide to leave. After all, a business is worth as much as a buyer is willing to pay.
Ways to grow the value of your business include having processes and procedures in place and increasing customer loyalty/returning customers. Look at implementing a loyalty program.