Businesses don’t have money problems. They have idea problems.

Faisal Khan

That’s quite a bold statement. We think a business’ success comes down the skills of it’s leader. If they are resourceful, keep their eye-on-the-prize, determined, persistent and spend time thinking and implementing the “right” things, it’s inevitable that the business will succeed.

However, when you’re under pressure to meet payroll, hire and fire staff, design stuff, meet banks and talk to clients and reply to 100 emails… Well, it’s easy to lose sight of what the important things you need to be doing to keep it all moving forward.

And, over time, there’s a gradual, unnoticed erosion of your company’s cash flow. You only notice it when you can’t pay the next HMRC tax bill.

Around 96% of businesses don’t last more than 10 years. That’s a big number and a testament that running a business is challenging. That’s why it’s important to understand the complexities of business and how to run a company effectively.

Lack of cash flow is one of the biggest killers, followed closely by lack of vision and leadership. Like every family needs a leader, so does every business. To be its visionary and make the big strategic decisions.

Here are some ideas to hopefully, keep you on track, or, bring you back from red to black.

Get a grip on your financials

The engine of business is money. Cash INFLOW and cash OUTFLOW. Managing what happens to these and everything in-between is where we sit as entrepreneurs and business owners.

Every business needs to be managed from it’s management accounts. Sounds silly, but it’s true. You can use management accounts to track all the ins and outs, as well as what expenses are around the corner.

For example, if you know every quarter you need to pay the rent and every year you need to renew the insurances and affiliations and pay regulatory fees, and tax – it’s possible to set aside money every month to cover those expenses and cover months that are slow. The best companies I see have two or three years of expenses on their balance sheet to give protection.

Your first step must be to take account of all the company’s income and expenses. You’ll be able to see how long it takers, on average for a client to pay you after the invoice has been issued. For most UK businesses this is an astonishing 73-days! But you would never know this if you didn’t track it.

Without complicating things, your company should produce monthly balance sheet statements, profit and loss accounts and cashflow statements. Each serves a different purpose and can show you different things. But, if this is something you’ve left to your accountant to deal with – then at least keep a simple spreadsheet with your Ins and Outs.

A spreadsheet will also highlight to you things like excessive use of the company’s credit cards, and what payment terms you have with your own suppliers.

Of course, you will use the same spreadsheet to help you manage your stock levels and sales. You’ll see things like how many times your stock is turned in a year, and whether you are carrying too much – which can lock up valuable cash flow for long periods of time.

You’ll see where your biggest expenses are – and that can give you motivation to go offset them or find ways to save money.

You’ll be able to see if your paying too much money for your invoice factoring – something we like to eliminate as soon as we get involved.

Management accounts must be produced every month at a minimum. Every week or two weeks is better so you can respond more quickly.

There are 100’s of ways to apply financial engineering to your business. Some can save you £1,000’s of pounds every month, some can make you £1,000’s every month. That could be enough to save the company from failing.

You’ll start testing your prices or trying new pricing models like monthly subscriptions and maintenance contracts (if it’s relevant) instead of one-off billing.

As an organisation, we try to engineer money based on a Profit First basis. So rather than saying, Sales – Expenses = Profit, we say, Sales – Profit = Expenses. It seems illogical but it works. You split off your profit upfront and manage the rest to cover all the expenses. This idea has come from Mike Michalowicz’s book called Profit First.

Improve your systems

Every department has bottlenecks. And each bottleneck ends up costing time, money, energy and other resources. Eliminating them is like releasing your car brakes – Your car starts to roll forward.

This idea comes from The Theory of Constraints by Eli Goldratt. In the 70’s he identified how to find the things within a factory that were slowing things down. Watch the video on YouTube. It’s fascinating and will “skill-you-up” as a CEO.

Your job is to spend time improving yout systems.

Start by making a list of each department – Marketing/ Sales/ Admin/ Maintenance/ R&D/ Accounts/ HR and so on.

Draw diagrams for each one showing you how the department work flows through it. You’ll discover things like your payroll can be done, or there are faster ways to build your product by using models, frameworks, templates. Or bringing new staff members can be some more systematically by creating a repeatable on-boarding process.

Then block out one-hour per week to spend working on improving that department. Simple. But will you do it?

In Summary

There are more ideas we can share.

Feel free to give us a call and have a chat. We look forward to hearing from you soon.