Most small businesses don’t rise and fall on their profits – what affects them the most is CASH FLOW. Cash is your business's lifeblood. Managed well, cash keeps your company strong. Managed poorly, your company tanks.
Knowing what affects your cash flow is the first step to avoiding a cash crisis. Most business owners believe their cash flow is defined as the revenues they generate less the expenses they have to pay. Not true.
The accounting rules that govern the creation of financial statements are not about tracking the actual flow of cash through your business. They are focused on measuring profit or loss at the end of the period - not cash flow.
The "bottom line" of your P&L is net income. And net income does not tell you what happened to your cash balance during the period. Meaning you can show a profit at the end of the month, but have had difficulty meeting payroll on the 15th and paid some bills late along the way. Your statements may show profit but your cash flow stinks!
Cash flow is made up of more than just profit and loss. It also is affected by: Accounts receivable, inventory, accounts payable, capital expenditures, borrowing and changing debt service, the timing of all these activities.
That's why you can't look at your income statement and see what happened to your cash during the month.
Luckily, the first step to improved cash management isn't exactly brain surgery: just start maximizing cash flow. There are many ways for companies to improve their cash position simply by making certain that their billing, collections, and payables systems are operating as efficiently as possible. Try to bring cash into the company as quickly as possible: bill promptly, aggressively follow up on overdue invoices, and, if possible, require up-front deposits when making sales. Then hold onto your cash as long as possible by managing your payables. That means, quite simply, take as long as you're allowed (without incurring late fees or interest charges) to pay your bills.
For more elaborate cash flow management, you must accurately assess your current cash position and make fairly reliable projections at key intervals about how much you'll need to meet expenses in the future.
If you're interested in delving deeper into cash management - shoot me an email at trish@akamai-consulting.com and I'll send you an Excel spreadsheet that will help you make easy cash flow projections for a full 12 months!
Showing posts with label finances. Show all posts
Showing posts with label finances. Show all posts
Friday, March 20, 2009
Friday, October 31, 2008
All Systems Grow!
I wrote this article last month for Victory Woman magazine (view at http://www.victorycircles.com/victory-woman-magazine.asp) to examine the process of growing a company from minuscule to massive...
Now, you might say 'I don't want to be MASSIVE, just medium!' Well, that's fine too. But the bottom line is that you follow the same steps and apply the same principles when you go from a sole proprietorship to a staff of five, as when you make the leap from a staff of 100 to a staff of 1000. The scale is certainly different, but several simple keys will open the doors.
Let's look at the 10 keys that will take your systems from slow to 'grow':
1. Have clarity of vision. Why are you in business? What is so great about what you do or make? Why will people want to give you money? If you can't answer these simple questions, you have a huge problem. Clarity = power. If you don't have a vision and a sense of destiny about your company, you won't grow.
2. Think BIGGER than you are. This is a tough one for small business owners. It's very difficult to hold an imaginary image of your company as a thriving conglomerate in your head everyday, but that is what it takes to design processes that accommodate other people and make long view decisions that will take you to the top.
3. Remember that your business is sales. Your business is not the product you manufacture. Your business is not the service you provide. Your real business is marketing and creating the internal capacity to successfully sell and deliver your products and services to a multitude of consumers.
4. Build a strong brand image. Branding is everything. Your products, services, ads, promotional materials, facility and staff all have to project a uniform image that speaks to your target audience. Align your entire business behind a strong brand that resonates with potential customers, and sales will naturally rise.
5. Determine key metrics. You can't move your company forward if you don't know what criteria really matter. Figure out what activities and metrics drive your business and track them with a vengeance. For some it might be weekly client meetings, for others it might be unit sales, for you it might be inventory turn... whatever matters, pay attention to that.
6. Study your finances. All businesses exist to make money. That means that you have to become a financial guru: researching, tracking, studying, sharing and using financial data to guide every decision. Every financial activity (borrowing, investor offerings, budgets, sales targets, ratios, etc.) should be in your head every second of the day.
7. Know your customers. Customers are king. If you don't have any, you won't have a business for long – much less grow. Know who the people are that you are trying to reach and why they will want to invest their hard-earned dollars with you. Design your entire company to meet their needs and please them. Gather their feedback and make customer service a top priority.
8. Become the threat. Many business advisors will tell you to study your competitors, play off their every strategic move and mimic their successes. I disagree. And my advice to you is BECOME THE THREAT. While every smart business owner knows what differentiates him and keeps an eye on the market, the most successful organizations step away from the pack and make their competition worry about them!
9. Create a culture of leadership and accountability. Eventually a growing company will expand beyond your ability to reach into every corner and crevice. In order to grow a business you have to build systems and mentor leaders, so that you can maintain focus on the bigger picture. Create an organizational culture that raises up great leaders, rewards results, and makes it easy for people to do their jobs.
10. WOW people! 'Customer satisfaction' is not my favorite term. It implies that your goal is for people to walk away feeling 'OK', but not amazed... Satisfied, but not so excited they want to tell all their friends. If you really want to take a leap to the next level I urge you to go for the 'wow factor' and look beyond simple satisfaction.
Now, you might say 'I don't want to be MASSIVE, just medium!' Well, that's fine too. But the bottom line is that you follow the same steps and apply the same principles when you go from a sole proprietorship to a staff of five, as when you make the leap from a staff of 100 to a staff of 1000. The scale is certainly different, but several simple keys will open the doors.
Let's look at the 10 keys that will take your systems from slow to 'grow':
1. Have clarity of vision. Why are you in business? What is so great about what you do or make? Why will people want to give you money? If you can't answer these simple questions, you have a huge problem. Clarity = power. If you don't have a vision and a sense of destiny about your company, you won't grow.
2. Think BIGGER than you are. This is a tough one for small business owners. It's very difficult to hold an imaginary image of your company as a thriving conglomerate in your head everyday, but that is what it takes to design processes that accommodate other people and make long view decisions that will take you to the top.
3. Remember that your business is sales. Your business is not the product you manufacture. Your business is not the service you provide. Your real business is marketing and creating the internal capacity to successfully sell and deliver your products and services to a multitude of consumers.
4. Build a strong brand image. Branding is everything. Your products, services, ads, promotional materials, facility and staff all have to project a uniform image that speaks to your target audience. Align your entire business behind a strong brand that resonates with potential customers, and sales will naturally rise.
5. Determine key metrics. You can't move your company forward if you don't know what criteria really matter. Figure out what activities and metrics drive your business and track them with a vengeance. For some it might be weekly client meetings, for others it might be unit sales, for you it might be inventory turn... whatever matters, pay attention to that.
6. Study your finances. All businesses exist to make money. That means that you have to become a financial guru: researching, tracking, studying, sharing and using financial data to guide every decision. Every financial activity (borrowing, investor offerings, budgets, sales targets, ratios, etc.) should be in your head every second of the day.
7. Know your customers. Customers are king. If you don't have any, you won't have a business for long – much less grow. Know who the people are that you are trying to reach and why they will want to invest their hard-earned dollars with you. Design your entire company to meet their needs and please them. Gather their feedback and make customer service a top priority.
8. Become the threat. Many business advisors will tell you to study your competitors, play off their every strategic move and mimic their successes. I disagree. And my advice to you is BECOME THE THREAT. While every smart business owner knows what differentiates him and keeps an eye on the market, the most successful organizations step away from the pack and make their competition worry about them!
9. Create a culture of leadership and accountability. Eventually a growing company will expand beyond your ability to reach into every corner and crevice. In order to grow a business you have to build systems and mentor leaders, so that you can maintain focus on the bigger picture. Create an organizational culture that raises up great leaders, rewards results, and makes it easy for people to do their jobs.
10. WOW people! 'Customer satisfaction' is not my favorite term. It implies that your goal is for people to walk away feeling 'OK', but not amazed... Satisfied, but not so excited they want to tell all their friends. If you really want to take a leap to the next level I urge you to go for the 'wow factor' and look beyond simple satisfaction.
Monday, September 29, 2008
Alan Cohen on the Economy
This is a very thought-provoking article from Alan Cohen, with his suggestions on how to personally respond to our current economic crisis...
An ancient Chinese blessing wishes recipients, "May you live in interesting times." Well, we now have the answer to that prayer. Actually, all times are interesting, just in different ways.
During the last week and month the economy seems to be at the top of most people's list of urgent issues to think and talk about. Today the U.S. government is issuing a new policy to deal with the economic upsets of late. Below are some suggestions on how to get to a better feeling place about the economy, and generate practical results for yourself and others.
Here is my six-point plan. I am not an economist, and frankly I don't understand all of the complexities of the current market. I do, however, understand the relationship between thought, belief, feeling, attitude, expectation, identity, and practical prosperity. So here is my six-point plan, which will surely work if you apply it:
1. Vision. A visionary sees and remembers the Big Picture in the face of current appearances to the contrary. The Big Picture of life is utter abundance. There are vast resources, economic and otherwise, for those who recognize and claim them. A visionary thrives under all conditions. There are always people who do well in difficult economic times, as well as those who flounder in prosperous times. It is not the economy at large that determines your well being; it is the consciousness you hold in relation to it. So you have the power to create a prosperous personal economy – and as you do, you will uplift the economy at large. The two greatest achievements of the twentieth century -- the Golden Gate Bridge and the Empire State Building -- were funded and built at the height of the great depression. Some individuals with a broad perspective were not limited by the prevalent beliefs of the masses. There are, and will be, people who prosper now and in the near future. I know people whose businesses are booming now. So can yours, and by your example you can manifest abundance that will inspire others and help them in material ways.
2. Trust. When human affairs appear to falter, the hand of the divine becomes very real and practical. A Higher Power is currently running the universe far more intelligently and successfully than even the best economists. The more you stay connected to that Higher Power, the richer will be your inner peace and your ability to make healthy, productive decisions.
In a Greek myth, the King of Crete sent Theseus through the labyrinth to kill or be killed by the dreaded monster Minotaur. The king's daughter Ariadne fell in love with Theseus and gave him a thread that he let unwind on his way into the labyrinth, which guided him out once he slayed the monster. Whenever you feel trapped or lost in the labyrinth of worldly life, your strongest move is to take hold of the thread of your connection to Spirit, hold firm to it, and let it lead you back to well-being. One of Dr. Wayne Dyer’s books is entitled, There's a Spiritual Solution to Every Problem, and no advice could be more appropriate than the economic situation we face at the moment.
3. Reframe. The Chinese written symbol for "crisis" is a combination of two other symbols: "Danger" and "Opportunity." Yes, there is a danger in our current position.
And yes, there is an opportunity. Perhaps we are receiving a wake-up call to live within our means rather than leverage ourselves and our institutions beyond a healthy level. Or we are being invited to recognize that money does not make us rich, or its temporary absence of restriction make us poor. Perhaps this situation will influence the upcoming election in a way that will help us in the long run. Maybe there is a natural balancing occurring that will make our economy stronger. I cannot say exactly how this crisis will serve, but I do know that whenever I have faced and handled the experience of crisis in my personal life, I have been moved to make decisions that have made improved my world. A Course in Miracles tells us that "All change is good," and this should be no exception.
4. Reset Priorities. In an episode of the popular television series, Fantasy Island, called, "The Luckiest Man in the World," a gambler achieved his fantasy to create an unstoppable winning streak. True to form, Mr. Roark arranged for the man's young son to visit him at the same time. When the gambler became hypnotized by winning, he distanced himself from his son, and the boy was about to leave him. Finally the father realized he is the luckiest man in the world -- not for his gambling winnings, but for his family. When money seems tight, we have a window of insight to recognize how rich we are, no matter how much we have in the bank. If many of us use this time to grow closer to our families, homes, nature, activities that truly bring us joy, ourselves, and our Higher Power, this upheaval will have served us well.
5. Circulate. Keep moving your energy, financially and otherwise. The brilliant metaphysician Florence Scovel Shinn noted, "All disease is due to congestion and all healing is due to circulation." This dynamic applies impeccably to an economic congestion. When people are afraid to spend money, there is less money in circulation; then people grow afraid to spend, and the cycle goes on. The dynamics shift when consumers act not from a sense of lack or fear, but from abundance and faith. So now would be a great time to spend your money. When you do, you affirm that you have enough and you keep the circulation moving -- not just from you, but to you. If you don't have money to spend, or would rather not, then circulate your energy in other ways. Express your creativity, volunteer, paint, play music, journal, and do anything to move energy rather than let it stagnate. (Pressing buttons on the remote control to watch talking heads discuss the economy does not qualify as circulating energy.)
6. Milk Every Moment. It would be easy to think that you will be able to relax and enjoy your life as soon as the current crisis is averted or offset. But that’s the carrot at the end of the stick -- the one that you never get to bite. Either life is rewarding now, or it never will be. From the sense of the ego, or small self, if it's not the economy you have to wait to handle, it's something else. So now would be perfect opportunity to practice enjoying your day, regardless of what money is doing. Stop and chat with the clerk in the supermarket, play with your kids, call someone you love, walk in the park, or tinker with your hobby. This is the moment you've been waiting for -- don’t miss it!
Everything will work out. It always does. Be of good cheer. Be uplifted and be an uplifter, and your contribution to the economy, financial and spiritual, will be paramount.
An ancient Chinese blessing wishes recipients, "May you live in interesting times." Well, we now have the answer to that prayer. Actually, all times are interesting, just in different ways.
During the last week and month the economy seems to be at the top of most people's list of urgent issues to think and talk about. Today the U.S. government is issuing a new policy to deal with the economic upsets of late. Below are some suggestions on how to get to a better feeling place about the economy, and generate practical results for yourself and others.
Here is my six-point plan. I am not an economist, and frankly I don't understand all of the complexities of the current market. I do, however, understand the relationship between thought, belief, feeling, attitude, expectation, identity, and practical prosperity. So here is my six-point plan, which will surely work if you apply it:
1. Vision. A visionary sees and remembers the Big Picture in the face of current appearances to the contrary. The Big Picture of life is utter abundance. There are vast resources, economic and otherwise, for those who recognize and claim them. A visionary thrives under all conditions. There are always people who do well in difficult economic times, as well as those who flounder in prosperous times. It is not the economy at large that determines your well being; it is the consciousness you hold in relation to it. So you have the power to create a prosperous personal economy – and as you do, you will uplift the economy at large. The two greatest achievements of the twentieth century -- the Golden Gate Bridge and the Empire State Building -- were funded and built at the height of the great depression. Some individuals with a broad perspective were not limited by the prevalent beliefs of the masses. There are, and will be, people who prosper now and in the near future. I know people whose businesses are booming now. So can yours, and by your example you can manifest abundance that will inspire others and help them in material ways.
2. Trust. When human affairs appear to falter, the hand of the divine becomes very real and practical. A Higher Power is currently running the universe far more intelligently and successfully than even the best economists. The more you stay connected to that Higher Power, the richer will be your inner peace and your ability to make healthy, productive decisions.
In a Greek myth, the King of Crete sent Theseus through the labyrinth to kill or be killed by the dreaded monster Minotaur. The king's daughter Ariadne fell in love with Theseus and gave him a thread that he let unwind on his way into the labyrinth, which guided him out once he slayed the monster. Whenever you feel trapped or lost in the labyrinth of worldly life, your strongest move is to take hold of the thread of your connection to Spirit, hold firm to it, and let it lead you back to well-being. One of Dr. Wayne Dyer’s books is entitled, There's a Spiritual Solution to Every Problem, and no advice could be more appropriate than the economic situation we face at the moment.
3. Reframe. The Chinese written symbol for "crisis" is a combination of two other symbols: "Danger" and "Opportunity." Yes, there is a danger in our current position.
And yes, there is an opportunity. Perhaps we are receiving a wake-up call to live within our means rather than leverage ourselves and our institutions beyond a healthy level. Or we are being invited to recognize that money does not make us rich, or its temporary absence of restriction make us poor. Perhaps this situation will influence the upcoming election in a way that will help us in the long run. Maybe there is a natural balancing occurring that will make our economy stronger. I cannot say exactly how this crisis will serve, but I do know that whenever I have faced and handled the experience of crisis in my personal life, I have been moved to make decisions that have made improved my world. A Course in Miracles tells us that "All change is good," and this should be no exception.
4. Reset Priorities. In an episode of the popular television series, Fantasy Island, called, "The Luckiest Man in the World," a gambler achieved his fantasy to create an unstoppable winning streak. True to form, Mr. Roark arranged for the man's young son to visit him at the same time. When the gambler became hypnotized by winning, he distanced himself from his son, and the boy was about to leave him. Finally the father realized he is the luckiest man in the world -- not for his gambling winnings, but for his family. When money seems tight, we have a window of insight to recognize how rich we are, no matter how much we have in the bank. If many of us use this time to grow closer to our families, homes, nature, activities that truly bring us joy, ourselves, and our Higher Power, this upheaval will have served us well.
5. Circulate. Keep moving your energy, financially and otherwise. The brilliant metaphysician Florence Scovel Shinn noted, "All disease is due to congestion and all healing is due to circulation." This dynamic applies impeccably to an economic congestion. When people are afraid to spend money, there is less money in circulation; then people grow afraid to spend, and the cycle goes on. The dynamics shift when consumers act not from a sense of lack or fear, but from abundance and faith. So now would be a great time to spend your money. When you do, you affirm that you have enough and you keep the circulation moving -- not just from you, but to you. If you don't have money to spend, or would rather not, then circulate your energy in other ways. Express your creativity, volunteer, paint, play music, journal, and do anything to move energy rather than let it stagnate. (Pressing buttons on the remote control to watch talking heads discuss the economy does not qualify as circulating energy.)
6. Milk Every Moment. It would be easy to think that you will be able to relax and enjoy your life as soon as the current crisis is averted or offset. But that’s the carrot at the end of the stick -- the one that you never get to bite. Either life is rewarding now, or it never will be. From the sense of the ego, or small self, if it's not the economy you have to wait to handle, it's something else. So now would be perfect opportunity to practice enjoying your day, regardless of what money is doing. Stop and chat with the clerk in the supermarket, play with your kids, call someone you love, walk in the park, or tinker with your hobby. This is the moment you've been waiting for -- don’t miss it!
Everything will work out. It always does. Be of good cheer. Be uplifted and be an uplifter, and your contribution to the economy, financial and spiritual, will be paramount.
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