All most people talk about is Sales, Revenue, Top Line Income, blah blah blah. So how do you fix Cash Flow?

How many different ways can you improve cash flow?

I'll get way more into the weeds in a bit, but for now let's start with the basics: You can either bring in more or give away less.

Obvious, right?

But if you're at all like me, you've probably spent hours, days, or even weeks of time in your business getting lost in details that ultimately lead you to forget that basic concept. Improving your cash flow is ultimately only about two things: Increasing what you bring in and decreasing what goes out.

If you took a moment to remember that and think about how you could apply it to your current business goals, would it help you get a little more creative about what your next steps are?

If the first question you asked yourself every day was "How can I improve my business' cash flow today?" would that change your behavior?

The first thing you probably think about when you need your business to do better is making more sales, right? That can be a great way to go, but improving your top-line revenue isn't just about more sales.

So what else is there?

If all else stays the same and the price you charge increases, you've instantly improved your bottom line. Even if you lose some customers, if you have a great or a necessary product people will keep buying from you.

Selling to fewer customers but selling for more might reduce expenses at the same time! You might buy less inventory or use less hourly labor even if your overall sales income stays exactly the same after a price increase. That's still a net gain for you!

You could increase the value you gain from each sale in other ways, too:

• Add to your catalog - give the people already buying from you more things they want

• Add value - upsell with things like warranties or other peace-of-mind offerings

• Encourage your customers to market for you with things like referral programs and rewards (and your great service, of course)

• ...and there are tons of other possibilities.

Every business is unique, but generally speaking the concepts that drive all of them are pretty similar. Have you used any of these strategies to improve your revenue? Anything I didn't mention here? Let us know!

As business owners we often get trapped in mental ruts: The answer to our problems is more sales. Our personal hustle is the key to our success. Our current product will always be our only product. Our business does X. What if you asked yourself "What if..." more often?

What if more sales - and pursuing those sales - was putting your business at greater risk?

Sure, more sales can be great. They'll almost always contribute to big growth in your business. But when you're focused on increasing sales at all costs, are you actually making more money?

What do you need to do to get those sales?

• Spend more on marketing

• Pay people to close customers

• Hire consultants and managers to tell you what to do better or differently

• Sacrifice more of your time and energy selling instead of doing what you do best
  

• Develop more infrastructure to support those sales or those customers

So if you could double your sales at the cost of $1k or $100k, would that be worthwhile? Would it actually increase your bottom line or just give you more headache and leave you with the same amount of money - or less! - at the end of the day?

What if your company sells on credit, with invoice terms like 10 or 30 days? In that case, dumping all your cash into getting those sales might clean you out for weeks or months while you wait for the actual cash from those sales to show up in your accounts.

Are you sure those extra sales would be worthwhile?

More sales are great! If you're growing, you probably expect and need them. Just don't let a focus on more sales transactions blind you to the cost of achieving them.

It's the Dream to have all the cash you could want just falling into your bank account, right?

But where that cash goes is at least as important to the health of your business and to how well it can help you achieve your goals.

When you're thinking about improving overall cash flow, increasing the number or value of your sales is absolutely useful. But it's not always the best way to get the most impact on the bottom line.

Businesses most often grow organically - you spend on marketing when you need sales, you spend on people when you need labor or expertise, and you put money into the products and services that improve your income.

The problem is that that can lead to bloat - things you no longer need to be putting your precious cash into.

It's critical for us as business owners to focus not just on whether we're selling enough, but also on whether the investments and expenditures that we're making day to day or month to month are actually worth their cost.

Do you have a plan or system in place to help you evaluate how you spend your money to make sure that it's getting you the most bang for your literal buck?

So how can you reduce your cash spend when you've looked at your numbers and decided that things need to change?

Let's start with one that often inspires some pretty heated debate.

For many small businesses, payroll is the single biggest drain on cash. So how can you improve that?

I'll interject my personal opinion here, because I think it's important: Paying your people as little as possible and keeping things just good enough to keep them from rage-quitting while expecting them to work harder than everyone else to avoid being "downsized" is the last thing I think business owners should strive for. More and more studies, and from a certain perspective common sense, tell us that staff that feel engaged, appreciated, and fulfilled will be vastly more effective and productive than staff who are treated like stereotypical wage slaves. Quiet quitting is a clear demonstration of this to me, and hopefully to you too.

That being said, how can you reduce your payroll, or at least get more value out of what you spend there?

Maybe you legitimately have employees that do jobs that could be covered by contractors. If you're willing to sacrifice some degree of control and oversight, that can be a great way to reduce payroll related liabilities and expenditures.

If you paid your employees more, whether by making room in your budget or by reducing your workforce a bit, would the most valuable people that you keep and reward feel like you deserved their best efforts? That might vastly increase the results you get for the money you spend. Some people respond better to carrots than to sticks, after all.

If all else stayed the same, but you switched to a flexible scheduling system, a hybrid or at-home work policy, etc, could you save on office space? Office lunches? Does your staff have personal concerns like kids or health that they'd love to be able to spend 5 or 10 minutes on during work breaks? How much time would you save them by allowing them to skip their commutes, and how much more focus could they give to you if those needs were addressed?

And finally, beyond staffing and policies' direct effects on payroll, what can you do to streamline the work that those folks are doing for you? Could better tools or automation, clearer communication and direction, or more effective processes and workflows allow them to get more done in the same amount of time? Or what if they just got the same work done in fewer hours?

Obviously payroll can be a fraught topic - we're talking about other people's livelihoods rather than just your own. My experience has been that one of the most important things to consider here isn't minimizing cost. Instead, consider maximizing value in ways that benefit both you and your workforce. Sure, sometimes staying afloat requires big cuts.

But sustained success usually requires investment.

Are you one of those people whose biggest outflows are for your team? How much did that surprise you as you grew?

Now let's focus on Marketing expenses, because at some point you've gotta tell people what you're selling if they're gonna come buy something from you. And let's start at the end.

When you look at your marketing spend, do you think in terms of dollars or percents?

Put it another way: when your marketing team or the agency that you work with tells you they'll give you 1000 sales for $1000, how do you decide whether that's a good deal?

• 1000 sales might sound great, but if you're selling widgets at $10 each and they cost you $8 to make, you're only profiting $2 per sale.

• 1000 sales leads to $10000 of revenue and $2000 profit.

• Congrats! Your marketing just cost you half of your profit: 50%.

It also cost you 10% of your revenue, right at the top of your P&L.

Your marketing spend gained you a dollar for every dollar you spent, but in the end you're only left with $1000 to pay all your other expenses, and then to pay yourself.

It might look like an absurd example, but if you haven't felt it yourself then you might be surprised at how often these numbers happen

Maybe a 100% return sounds great for you, but let's look at how much of an effect reducing that percentage by just a little bit can have.

All else being the same, if the marketing for those sales cost you 9% of your revenue instead of 10, here's how the match looks:

• 1000 sales -> $10000 in revenue and costs you $8000, leaving $2000 in profit.

• You pay your marketing invoice of $900, leaving $1100 in cash.
  

So in this example, you've reduced your marketing spend by 1% of your revenue by using cheaper and more effective methods and that increased the cash you have at the end of the day by 10%.

Could it be worthwhile to have a conversation with your marketers about improving the ROI of your marketing by 10% instead of the extra dollars you'd have to spend to get a few more sales?

Payroll and Marketing are probably the two largest cash drains that just about all businesses have in common. But lots of us sell stuff, and that stuff costs money, too.

Whether you purchase supplies for projects or purchase goods for resale, it's likely that those eat up a significant amount of your cash resources month to month - especially in retail or restaurants where your margins can be razor thin.

So how can you manage those expenses in ways that improve your overall cashflow?

In my experience the best strategy, ultimately, is building trust with your vendors. If you develop a habit of communicating with them promptly and doing everything in your power to pay on time, every time, you'll be able to ask for more concessions from them. Whether that's a later due date on invoices, better interest rates, or steeper discounts, if your business relies on what they sell you then making those improvements can completely change your business.

Let's dig into each of those a little more and talk about where else you might be able to leverage these ideas for yourself.

Better discounts are pretty self-explanatory - you buy what you need for less. Good relationships that benefit everybody involved make this a lot easier. After all, you're probably pretty likely to give some concessions to your best customers, right? If they've been buying from you for years and will likely be buying for years more, it might be worth sacrificing a little immediate cash flow for the sake of predictability. Your vendors will feel the same way!

What about better rates? You might be most familiar with this in terms of mortgages or credit cards in your personal life. Think of an interest rate as how much it costs you to pay later for stuff you buy now. When you have a solid reputation for paying on time and respecting your suppliers, you're a lower risk to the businesses selling to you. That means they won't need to charge you as much to hedge their bets when they extend you credit. You could find better financing, too! Maybe a bank can give you a better rate for a business line of credit than your suppliers can provide to you directly, or you could find a more "generous" credit card that gives you a better deal than your current one.

Better terms are the last point I mentioned above, and they can be one of the most powerful in the short term. Again, this can tie back to the trust your suppliers and vendors have in you. The more they trust you the more flexible they can be with you. So what do better terms mean? They mean that you can keep the cash that you owe them for longer. You're basically postponing the point at which you have to pay that bill. In the meantime, you can use that cash to pay your employees, make other purchases, or just to float on in case you have an emergency while you wait for more cash to show up in your accounts.

These ideas are often the most impactful for businesses that deal with physical materials, but just about everybody can use them somehow. Where do you think you could apply them?

This is a big, complicated wall of text with a lot of big ideas in it. Maybe you've been wondering how you could possibly manage all these with all the other hats you wear and the fires you're constantly fighting just to stay afloat. After all, you can't do everything.

But if any of this makes sense or feels like it could be important to you and your business - and especially if you don't feel like you have the time, energy, or expertise to deal with it yourself - then maybe it's time to make some changes:

• What's most important for the health of your business right now? More sales? Keeping more of your income? Figuring out what that is in the first place?

• Will you be able to focus on that single objective day to day, week to week, until it gets better? Or do you need systems or people to help you stay accountable and effective?

• If you don't know where your business is hurting, what steps will you take to find out?

You've probably been on the internet long enough to know that the answer here is me - and Compass Rose. What we do as Cash Flow and Profit Advisors is to help you understand the reality of your business, then to choose the best next steps to make it better next week, next month, next year - to help you be certain that you're on track to reach your goals.

When should you work with me?

When:

• Your business is living paycheck to paycheck - maybe the way you were before you started it, if you used to have a job.

• You want to grow but you don't have the cash to. But you don't have the cash because you need to grow to get it.

• Your business isn't delivering what you want or need it to - whether for yourself, your team, your community, or your family.

So if all this stuff has made sense, but you aren't sure where to start, here's the easy answer:

Reach out. Schedule a call with us. Let's find out whether Compass Rose can help you achieve your goals.

Talk to you soon.

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