Turnover is vanity, profit is sanity but cash is king.
Here are 5 easy ways to improve your cash flow.
Many businesses have gone broke doing business. What that means is they are making lots of sales but failing in some fundamental cash flow areas. This leads them to a position where they are unable to pay wages and bills.
This is a recipe for disaster and unfortunately, this is what leads many businesses (focused solely on revenue) to simply go broke.
All businesses need to focus on a strategic system of bookkeeping, which involves a 5 step numbers methodology shown below:
If you’d like to read more about our 5 step numbers methodology, here are some links to earlier blogs
So now, I’d like to introduce you to SERPI. This is (and has always been) the 5 ways to pull profit and cash from your business.
That’s right, not just cash but profit too.
SERPI stands for
Sales
Expenses
receivable days
payable days
inventory days.
It’s such a simple formula, and yet, very few business owners know or understand it. And when the wheels are spinning it can be hard to stop and implement it.
But rest assured, SERPI will revolutionise your profit and cash flow. So let’s break it down.
Sales
Increasing your sales is one way to pull more profit and cash out of your business.
My number 1 tip for increasing sales around your marketing activities. Specifically, marketing 101 activities which are generally low or no cost & leverage your database.
Many business owners think of revenue generating activities as expensive advertising campaigns with digital marketing agencies. They are neglecting what I call the “diamonds at their feet”.
The diamonds at your feet (a Marketing 101 strategy) are the people who already know, like or trust you. These include your current clients, your past clients, your prospects (on your database), your social media networks, and any other networks that you have.
Are you keeping in touch with your database in a strategic way?
I was recently working with a business who manufactures custom made furniture. They are a lovely little business based on the Gold Coast and they have been operating for about 20 years. And so as you can imagine, they’ve got a big database, and lots of happy customers.
When their administrator suggested they might place a glossy ad in a magazine, I asked them,
“Are you keeping in touch with your customers?”
I suggested that rather than spending lots of money on an ad, how about they start by reaching out to their past clients to say hi with a message like this:
Hi, it’s Joe here from Bespoke Furniture Design. How are you enjoying the piece we made for you? I’d love to see a photo of it in your home.
Keep in touch marketing is what I call KIT marketing. KIT stands for keep in touch.
Ask yourself, “What’s in my marketing kit?”. I also like to call this manners marketing, conversation marketing and database marketing.
Regardless of the label, this is all about the diamonds at your feet.
If you are a plumber and you provide a great service, there is nothing wrong with touching base with your customers every few months to remind them that you’re there to ask them if everything’s going well up to the job you did.
It’s smart, strategic, and it’s manners.
Every client of mine who engages in this kind of marketing gets immediate results that increase their sales, their profit and their cash.
Expenses
Now let’s look at expenses.
The second way to pull more profit and cash out of your business is to reduce your expenses.
Remember our 5 step numbers methodology? If you are not doing step five, which is monitoring your numbers, you are probably not paying much attention to your expenses.
I could give you many examples of quick wins on expenditure and one is that we see a lot of clients spending money on subscriptions that they didn’t even know they had.
An hour of diving into your numbers and looking at expenses can yield $5,000 to $100,000 in annual savings for you. That’s right, we’ve saved clients up to $100,000 in an hour.
In fact, the first hour is where all the quick big wins are.
And then month by month after that, we continue to get the little wins. Reduce your expenses in a strategic way and you will pull more profit and cash out of your business.
Receivable Days
The third way to pull more profit and cash out of your business and the one I’m probably most passionate about is receivable days.
I could write a war and peace novel on receivable days.
Are your customers paying you on time?
Are your payment terms really as good as they could be?
Could you be asking for payment in advance?
Are you making it easy for customers to pay early and on time?
Have you set up automation in your accounting software to remind your customers to pay?
Improving your receivable days is about having a good accounts receivable system, good payment terms and leveraging your tech to do as much grunt work as possible.
Payable Days
The fourth way to pull more profit and cash out of your business is payable days.
If you pay suppliers, have you negotiated the best possible terms?
I met with a client recently and I was so impressed with the terms that he had negotiated with his suppliers and customers. He is paying for his stock, a long time after he sees the money from his customers, making his business very cash flow positive.
Your staff also fall into the category of payable days.
Have you got a payroll calendar and a pay day that has been optimized for cash flow?
Most businesses, I know, have not. Let me tell you about a best practice payroll calendar, and the one that I use in my business to optimize for cash flow.
#1 Pay your staff and subcontractors fortnightly, not weekly
#2 Make their pay day approximately four days after the pay calendar ends
For example, my team has a payroll calendar which runs on Monday to Sunday over a fortnight and their pay day is the Thursday after the calendar closes. This is a smart payroll system that aids cash flow.
Inventory Days
The final way to pull profit and cash out of your businesses is inventory days.
Inventory days is all about how long your stock sits on the shelf or in the warehouse before it sells. This is also known as stock turns.
When I was working in a big electrical retailer, we had some of the best stock turns in the country. Thanks to an extraordinary buyer and logistics manager, we grew that business from $10 million to $100 million turnover and sold for $30 million.
The truth is that we couldn’t have done that with poor stock turns, also known as poor inventory days.
Business success is a puzzle and inventory days, if you are in the game of selling stock, is a piece of that puzzle.
So there you have it – SERPI, the five ways to pull profit and cash from your business certainly fits into our five step numbers methodology.
Here are 3 free tools you can use right now to optimize your business for profit and cash
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