Money is the lifeblood of a business.
There are lots of other measures for performance, but the amount of cash you have on hand to pay your company bills gives a ready measure of if you are able to keep trading.
Maintaining that cash flow is therefore critical and there are some key questions to ask about your cash flow and your banking solution:
Where does the money come from?
Ideally, you will be funding your business from revenue. Getting more money in than you are spending. Sell more and spend less.
In tight financial times, there are several alternative sources for the small business.
Banks – once you prove (in some detail and a high level of confidence) that you can afford the repayments and can offer something of value as guarantee that the bank will get its money back! A shame they weren’t so diligent before the banking crisis!
Investors – There are a variety of investors to investigate including, friends and family, angel investors and venture capitalists. Be careful how you step here as the person investing may want a level of influence in your business and you only want allies in your board room!
What does it cost you to get that money?
There is always a cost when you borrow money. Interest rates are low at the moment but will vary. If you bring in external investment, you may pay with your level of control in the business. Even friends and family will want to know what their money is being used for and they are more difficult to keep at a distance as they are possibly less aware of how business runs and may be more concerned about the use of ‘their’ money on a day to day basis.
Is your money working for you?
Are you getting the maximum from the money you have? Having it sitting in the bank is reassuring and you will need to maintain a good level of cash to ensure you can cover your costs and any contingencies that occur. The rest needs to be adding value to your company.
How can you strengthen your finances?
New products – This may be diversity to exploit a new trend or opportunity in the marketplace. it may also be a way to ensure that you have multiple streams of income so that if one area suffers, another can supplement your cash flow.
Promotion and marketing – Get the message out to you current and potential customers. the only thing worse than being talked about is not being talked about so get your brand name out there with marketing.
Increasing pricing – if you are confident of the value you are adding and the loyalty of your customers, an increase in price may be acceptable.
Increase sales – Alternatively, selling more is a clear option. As businesses struggle and fail, their customers need to buy from somewhere, so make sure it is from you!
More frequent sales – Repeat sales from loyal customers are critical to ensuring you have a steady cash flow. What can you do to increase the tempo at which these customers buy?
Reduce stock – Money invested in stock is not adding value to the business. Sell the stock, reduce the amount you have invested in unproductive warehouse stock and reduce the cost of your storage. If you own the storage, consider subletting that storage area to another business to share the cost or generate another revenue stream.
How quickly do you get paid?
Get the money in as quickly as you can! Simple.
How quickly do you pay?
Hold onto your cash as long as you can! Simple.
How are you measuring the money?
How do you monitor and manage your financial transactions in your business? Knowing where the money comes from and where it is going will allow you to identify trends and key drivers in the business. Get the most out of those key areas and reduce the effort you spend on the less productive activities.
How is your bank supporting you?
Have you chatted to your bank recently about how to maximise your profit?
Banks are not always the first choice for business advice, but they do see lots of ventures and lots of failures, so exploit their experience and learn from the misfortunes of others.
Banks also have lots of other businesses under there financial umbrella so there may be scope for you to get referrals from your banking support team. Not so easy if the team is outsourced and offshore so this may be a factor you need to consider in your banking choice.
BUT as with all advice, you are ultimately responsible for your own destiny, so ensure you are happy with the decision YOU make on the the advice YOU get!
How quickly could you get the money you need to survive if you needed it?
Ready cash, the ability to liquidate assets quickly and the ability too borrow money quickly are critical factors in ensuring that you have the money to survive.
And finally some simple advice from Mike Southern and Chris West, in the book The Beermat Entrepreneur: Turn Your Good Idea into a Great Business
‘Watch the cash laddie and don’t go broke.’
Dare to Aspire