Should you improve Cashflow or Profits?

This is a question I get asked very often and the answer is not always straight forward as they both matter. However sometimes one matters more than the other..

We’ve had a recession forced upon us in recent times and this has caused many businesses to suffer greatly and if not, destroy them altogether

With this in mind I want to support your requirements in managing your cashflow and what drivers you can absolutely control and therefore improving it. I can’t stress the importance of small business cashflow management

Regardless of economic climate, this is something you should, as a business, work on all the time as there always will be something you can influence.. There is an old saying, look after the pennies and pounds will look after themselves, this absolutely holds true when it comes to cashflow! Cashflow is the lifeblood of your business no matter what’s happening in the macro economic climate, so never take your eyes off it.

When I’m working on cashflow projects, there are 8 levers that I assess the business against, which you will learn about in the video, however don’t just stop there, always question what other levers you may have or even sub divide the levers I’ve called out if some of them are too broad for a specific area of your business. See once you call them out, then you can start creating plans and activities to do something about them, that is, assess where you and set targets for where you would like to be..

An important point to note here is that there is no one size fits all approach to this as your business model on the ground will be different than the business next door, so start working with the levers you believe will deliver the most effective results in the shortest possible time. It’s your business, so be smart at all times.

Economies will always through curve balls at you, and this particular recession has been completely unprecedented, if you have survived it, I salute you! With that, take heed of what you’ve learnt from it, look at what in your business you can do to protect it and mitigate any risk driven by external factors so the next time something like this happens you know you have a solid platform to work with.


Video transcript

Hi it’s Shay Lynch here
Director of Future State

and today’s topic is cashflow.

Now I’m bringing up cashflow

I’ve talked about it many times before

why am I talking about it now is well

we’re going through very
very uncertain times

at this moment and while we cannot control

the macroeconomic climate

I wanna help you work on
the things you can control

in your business today
and that is your cashflow.

And I wanna talk about the
difference between cashflow

and profits because
again many many companies

talk about profits.

Like when I see their books the profits

everything looks good on paper.

But how does that transpire
into the business itself

the working mechanisms
the daytoday operations

and so forth?

Because profits are good on paper

cashflow decides the
success of your business

on a daytoday basis so
it’s extremely important

to know the difference
between cashflow and profit.

Profit is great when you’re
looking for investment

when you’re looking to talk about

how you’re gonna scale your business

if you’re talking to investors

and they can see well you know what?

This business is viable
this can make profit

we can help this business
and we can all win

we can all benefit right?

But if you wanna survive daytoday

you have to make sure your
cashflow cycle is in control

to the best of your ability right?

So with that you will see
here what I wanna show you here

is like this little box here is all about

well the green is all the cash coming

into your business right?

But as you make your
payments to your salaries

your staff your wages utility bills

revenue charges loan
repayments or whatever

all the different cash out.

By the time this happens on

say you’re talking about
a month to month basis

your net profits are
being eaten away right?

So with that unless you know things

are always gonna get tighter

cost of logistics the cost of fuel

the cost of everything
goes up which squeezes

and squeezes your net profit all the time.

So it’s very important you make sure

that this is positive not negative

and that’s where managing your cash flow

is extremely important.

And it could mean the
difference of your being

just striving along working daytoday

or absolutely thriving right?

So with that and again also to ensure

when you are in difficult time

that you have a business
model that you know

is gonna give you the best ability

and potential to get out of it right?

So with that I want to talk
about a number of levers.

So when I work with my customers

it’s usually about eight
levers that I work with.

Now some of them are on the sales side

some are on the inside
of your business right?

So I divided into two
like the sales side right?

There is four levers you can work with

which are customers right?

First of all sales price.

Now I’ve talked about this before.

Now can you increase your sales price?

Now say for example if
you want to increase

your sales price by % by
addingto % more value.

Is that lever available to your business?

So I would ask you to check
look at your customers

look at your marketplace see
what everyone else is doing

and see is there potential
to improve that sales price?

Cost of sales.

And again we’ve talked this
in detail in another video

right cost of sales.

Like I’ve also worked
many sales environments

where I managed and projected
the cost of sales right

broke it down and I’ve seen that %

of the sales process
doesn’t lead to a cent.

And of that % only % has actually led

to a profitable sale % were not.

So managing your cost of sales is huge.

all the way through your funnel.

Don’t be chasing leads
for the sake of them.

Only chase high potential
leads and ensuring

that everything you do is giving you

the best chance of getting to a sale.

This is huge this is absolutely huge

in terms of your cost of marketing

in terms of lead generation
there are so many

things you can do in your cost of sales

and again we’ve talked about
this in a previous video.

Obviously the obvious one is improving

your volume of sales.

And again it ties into the process

of your systematic sales and again

we’ve talked about this in detail before.

But how do you become more effective

at every stage of the funnel to ensure

your conversions are going
up and you’re better serving

your customers all the time.

‘Cause it is all about service delivery

not necessarily just
about increasing sales.

You have to increase the
value to your customers.

And then obviously sales
payment the cash cycle

with your customers and
you get revenue coming in.

This is extremely important.

This alone can make or break your business

so it’s important to have
a very systematic approach

to receiving payments from your customers.

Now how do I do that?

Well there’s a number of different ways.

It depends on your
marketplace it depends on

what is the norm in terms
of the sector you work in

but usually that involves
breaking your payments

down into stage payments right?

And they’re usually front loads

and only leaving a little
bit out at the end.

Because what happens
if you do all your work

then you don’t get paid for it.

You’ve wasted a lot of time.

You haven’t got the value to show

’cause you haven’t done the revenue.

So it’s very important
to agree stage payments

with your customers.

That is fair it has to
work for them as well

as it has to work for you.

So it’s extremely important
to control all those levers

on the sales side.

You systematically work through these

straightaway you’ve made
an improvement right?

Now on the internal side
operational efficiency.

Again this is huge.

We’ve talked about this in detail before.

But it’s all about
streamlining the value process

in your business.

Everything that leads to service delivery

from your customer’s perspective right?

Improving the value
reducing the nonvalue

and the net result of that is

you’ve got a time for service
delivery or production

then when you deliver to your customers

you’ve another time on top of that

where you invoice and then get paid.

This is all about reducing your production

or service cycle so then
you can invoice quicker

you can get paid quicker.

And again this absolutely ties in

to this payment process right here.

When you reduce that cycle alone

you get paid quicker.

You improve your cash flow straightaway.

This is huge.

You know when you do
this and only with this

this will also improve your profits

because you reduce your cost of operations

therefore you increase your net profits

again protecting that one
right there all right?

So we’ve talked about
that in detail before

so I suggest to look
at the previous videos

that I’ve done in this area.

And then if you have suppliers

whether they component suppliers

or contractors to execute delivery

there’s a number of different levers

that you can work with them.

Again if it’s inventory reduce the amount

of components and stock
that you have inhouse.

Use can bands to signal when you need

new components brought in.

Get less of more often
so you’ve straightaway

freed up a lot of cash just there.

Not only in the cost of having them

but the cost of storing them

and insurance costs that goes with it.

There’s huge savings to be made here.

Now obviously if you’re getting inventory

from are off field from
different continents

you have to be very
careful with this as well.

And this could be just as simple as

having your partners in
these different continents

having a finite amount of finished goods

so you don’t have to worry
about their production cycle

you just have to get them shipped to you

in that cycle as well.

So lots of stuff can be done there.

And again creditors
developing winwin credit terms

with your suppliers that
works for them works for you.

Obviously the nice one for you is

you only pay them when you get paid.

It doesn’t always work as clean as that.

But work together to make it better

so it works for both parties.

You’re in this process together.

So find out where is the sweet spot

about these credit terms.

And yes keep it as close
to when you get paid

from your customers to pay them.

That means you’re in a positive
cash cycle all the time.

And then finally what you’re doing here

support your suppliers
doing those activities well.

You will never understand or appreciate

what you can do by helping your suppliers

until you actually go and do it.

Replicate what you’re
doing there with them.

And that could look in
many different guises.

It could be simplifying your components.

It could be helping them
with their suppliers

raw material suppliers or it could be

talking about their
operational efficiencies.

So work with them this huge

if your suppliers are a big part

of your cost and your business

work very very closely with them.

And once you start if you
focus on a little bit here

all the way through these
four levers and these

they will accumulate to
quite a substantial savings

in your cash flow.

This makes a huge
difference little in a lot

of areas accumulates
to quite a substantial.

So create a plan and
systematically work through

every single one of these.

Now I’ve put down eight levers here.

Usually you can work very
well between four to six.

You know stretch it as best you can

because the more you
can improve these areas

the better your cash cycle will be.

And this will also then
support your net profits

and then make your business more viable

so when things do get
tight you can go to a bank

and say look we just
need a shortterm loan

to get through this difficult time

but you can see our business
is absolutely viable.

So this supports working with banks

and it also supports if
you wanna get an injection

you want to scale your business

this will absolutely
support anything you do

to get investment in.

So over to you.

What are you gonna do now to
improve your cash flow cycle

in your business?

This is Shay Lynch saying
thanks for listening.

(upbeat music)