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  • Writer's pictureJeannie Savage

The 7 Deadly Cashflow Sins

Updated: Oct 12, 2021

Where’s all the cash? This is the question that virtually every small business owner I’ve ever worked with has asked me. Either directly or indirectly. And this lack of understanding around “where’s all the cash”, leads them to feeling in the dark about their numbers overall.

In this article we’ll explore SERPICO, which is the acronym for The 7 Deadly Cashflow Sins.

Around 40% of all small businesses go bust in their first year and 80% within 5 years and that trend is pretty global.

Understanding SERPICO is designed to help you not only survive but also thrive.

But before we dive into SERPICO, let’s first look at the foundation you need to set yourself up for great cash and profit in your business.

That foundation is up to date, accurate bookkeeping.

If your bookkeeping is not up to date, and by up to date I mean weekly, this is your number 1 job.

Trust me now & believe me later, without this you’re flying blind whereas you need to be in the driver's seat to run a successful business.

Think of “great cash and profit” as your business heartbeat. If you’re flying blind around your numbers, you’re headed for a heart attack. I see it all the time.

And in fact, here’s the cycle I see:

1. You fall behind on the books

2. You have no “optics” (eyes) on your numbers

3. You don't actually know how your business is “performing” (profit and cash are the yardstick on which to measure your business performance

4. You make all your decisions by looking at your bank account

5. You don’t know or realise you’re running up obligations (taxes, staff entitlements and more) because you’re running the business on the bank account

6. Eventually you are forced to “reconcile” the books and business mess & face up to everything

7. Lastly, you’ve gone broke without even realising - we call this “going broke doing business”

If you are behind on your bookkeeping here’s an article to help you get caught up.

Now onto SERPICO.

SERPICO stands for sales, expenses, receivables, payables, inventory, cash and owner drawings.


The 1st deadly cashflow sin is having a poor (or no) pricing system in place around “Sales”.

You can increase your profit and cash by making more sales but you must make sure you’ve created a smart, strategic, industry relevant pricing system. A solid pricing system is well known as a leading pillar for business success.

When you start out in business as a solo operator, often you start charging by the hour. And when you’re working by yourself, the money you bring in minus expenses is yours to keep. If you keep running costs low (especially in a service based business), you might enjoy a decent wage. But even solo operators often find themselves working full time for less than their day job paid. A poor pricing system will often be to blame.

A few years ago we met Sam, a chippie who found himself specialising in supply and installation of doors. Prior to starting his own business Sam's boss was paying him $30 per hour and so Sam reasoned that if he charged his clients $45 per hour, that’s 50% more, well he’d be rolling in it right? If only business was that easy.

Sam didn’t create a smart, strategic, industry driven pricing system to set himself up for optimal cash flow or profit and so...

  1. He had no way to factor in the time he spent running his business, doing quotes, travelling, admin etc

  2. He was being punished for being fast & efficient by earning less than someone who was slow (selling time rather than skills and outcomes)

  3. He had set his clients up to be cost focused and watch the clock rather than outcome focused and marvel at the results

Sam found he was working full time and earning only half what he did in his day job. After we showed Sam his numbers (during a Virtual CFO session) he decided to try a new pricing strategy. He came up with a range of fixed price options for his customers' needs. Sam stopped falling victim to this first deadly cashflow sin and as a result

  1. He started making 2 to 10 times his original rate, depending on the job

  2. His customers were happier, no longer focussed on how long the job took, they simply raved about how wonderful the results were and how professional Sam is

  3. As a result, Sam had even more time to work on the business and sp he gathered photos and reviews from his clients which grew his business exponentially

All this happened because Sam decided to put a smart pricing system in place around “Sales”

Here are my top tips for creating a pricing system

  1. If you must charge by the hour observe the rule of thirds or use industry benchmarks in order to optimise your business profit and performance

  2. Avoid charging by the hour and come up with fixed price rates where you trade money for outcomes and value

    1. Remember everyone (in services) is faster or slower and so hourly billing really doesn’t make sense

    2. You should always observe the rule of thirds or use industry benchmarks in order to optimise regardless of which how you price

  3. Remember that running a business means that the profit from sales needs to cover all the running costs. Start as you mean to go on. Create a smart pricing strategy from day one which supports everything you need to do to run your business and plan for a time when you’ll employ staff.


The 2nd deadly cashflow sin is failing to pay attention to your numbers and minimise costs (expenses).

Reducing expenses is a smart way to improve profit and cash. Just an hour in the numbers can yield incredible results. In fact, we find that first hour in the numbers to be where we get the biggest wins. 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.

In 2017, I met a business owner named Simone who was referred to us by her accountant. Simone was doing great in terms of building the business sales, but she wasn’t great at looking at her numbers or paying much attention to them. As a result she didn’t realise she was actually losing $10,000 a month.

Month by month we sat down with Simone and chipped away at reducing her expenses by $20,000 per month so that the gym was profiting $10,000 per month.

The moral of this story is that to avoid the 2nd deadly cashflow sin

“Sit down with a Strategic Bookkeeper every month because you’ll

save more than you spend on her fees.”


The 3rd deadly cash flow sin is poor receivables management.

This sin occurs when “your customers pay you after you pay your staff and supplies” which in turn creates cashflow pressure.

What you want is for your customers to pay you before you pay your staff and suppliers.

  • 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?

Running out of cash (for any reason) will send a business broke even if they’re making a profit. And one of the main offenders is poor accounts receivable systems.

Australia is second only to Nigeria for how bad we are at paying our bills. You’re not a bank so don’t act like one. Do yourself a favour, avoid this deadly sin by being smart with your customer payment terms and systems.

If you must run accounts you’ll need to spend time setting up good policies and procedures around how to issue statements, invoice reminders and handle customers who simply don’t pay.

You’ll also need a plan around how you’ll fund the gap in cash that occurs between you paying your staff and suppliers ahead of receiving the money from your customers.

Ideally, don’t offer customer accounts. Offer credit card instead.


The 4th deadly cash flow sin is poor payables management.

This sin occurs when you “pay your staff and suppliers before you receive money from your customers' which again, creates cashflow pressure.

Once again, what you want is for your customers to pay you before you pay your staff and suppliers.

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 cashflow 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.

As I said before, running out of cash (for any reason) will send a business broke even if they’re making a profit. And one of the main offenders is poor accounts payable systems.


The 5th deadly cashflow sin is poor inventory days.

This sin occurs when you “pay for stock after you receive money from your customers”.

By now I assume you’re seeing a theme.

Ideal cashflow starts with receiving money from your customers ahead of paying

for cost of sales like staff, suppliers and stock

Whether you are committing this deadly cashflow sin 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”.

Years ago I was helping a well known electrical retailer grow from 10m to 100m turnover. They had amazing cashflow due in part to their great “stock turns”. That is, as a rule, they paid for their stock after they sold it to customers (and collected the money).

It would have been difficult to grow that business from 10m to 100m without good inventory days (stock turns).

Business success is a puzzle and inventory days, if you are in the game of selling stock, is a piece of that puzzle.

Cash at bank

The 6th deadly cashflow sin is “running your business on the bank account”.

Many business owners have the misconception that the bank account tells them about their business performance but it does not.

They tend to look at their bank and if there is money in there they assume that means their business is thriving and that they can spend that money.

This is a fatal mistake!

Your “financials” tell you how your business is performing and you need up-to-date, accurate Bookkeeping to access them.

Put another way,

“the cash in the bank is not a reflection of profit”

Business owners who commit this deadly cashflow sin are setting themselves up for failure.

I remember some years ago, my Bookkeeper said to me “you have a lot of money in your bank account” to which I replied “yes, and none of it is mine”. My bank account contained money for the ATO, the staff superannuation, software suppliers and payroll. And not by accident, deliberately. I’d set myself (and my numbers strategy) up that way.

Avoid this sin by

  • Having up to date, accurate bookkeeping

  • Having a strategic bookkeeping process to review the numbers and act on them

Owner Drawings

The 7th deadly cashflow sin is taking more owner drawings than available.

This one ties into “running the business on the bank account”.

When we engage our clients around their numbers in virtual CFO, one of the things we help them review is how much money they’re drawing out (for themselves) compared to how much profit they are making. And oftentimes, they’re drawing out more than they’re making in profit.

That tends to lead to mounting debts they’re unaware they’re running up.

  • Your profit and loss does not “show” your drawings (they’re on the balance sheet)

  • Therefore you can’t see them when you review your profit and loss

  • Remember your cash at bank isn’t a reflection of profit and so you can easily overdraw and still have money in the bank (because the money in the bank is also for tax, gst, superannuation, suppliers etc)

To avoid this deadly cashflow sin here are my top tips

  • Use a business bank account solely for business purposes (do not mix business and personal, do not treat your business bank account like a personal ATM)

  • Ensure that your “drawings” are less than the cash profit (at all times)

  • Also understand that you’ll need enough cash left in your business (and bank) to cover things like loan repayments, assets you’re purchasing, staff leave entitlements and income tax (which are not on your profit and loss but require cash reserves to cover them)

  • Ensure you’re reserving money for PAYG and GST

So there you have it. The 7 Deadly Cashflow Sins. Now that you’re aware of them, what will you do about them?

There are 3 A’s to change

  • Awareness

  • Acceptance

  • Action

If you would like to get in touch with us and talk about your business cashflow, strategic bookkeeping or anything else I’d encourage you to book a discovery call here

And here’s 3 free tools that will help you take the action you need to get cashed up, optimise your profit and build your dream business and life.

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