Cash is King!

Darryn le Grange chats about how you can find the cash in your business.

Cash is the lifeblood of every business, and no cash = no business. If your business suffers from poor or inconsistent cash flow, it is important to understand the underlying reasons so you can take the necessary remedial action.

Here are some of the top reasons for poor cash flow, and some solutions.

Insufficient Sales (ie: Loss Making)

• This is where your sales or gross margin is insufficient to cover your fixed overheads so you are in actual fact making a loss.
• Ensure you know your sales breakeven point (Fixed Costs divided by GP%). Use this to work out your sales targets by month, week and day if necessary.
• Sales is a function of Leads and Conversion Rate. Make sure you are measuring both of these and put strategies in place to improve them.

Poor Debtors Collections

• Ensure you put a robust collections process in place
• Educate your clients on your payment terms
• Don’t hide behind emails. Phone the debtors that are overdue and get a commitment from them.
• Be the Rash. Customers will always pay “he who shouts loudest first” (not literally).

Overstocked

• Implement minimum stock holding / re-order levels and only order when you reach the minimum, taking lead times into account.
• Ensure there are sufficient controls / processes in place for the ordering of stock. Don’t let a junior member of staff handle this.

High Debt Levels

• Know your cash flow breakeven point (total monthly outflows divided by GP%)
• Try hard to pay off the expensive debt first.
• Avoid overspending on items like expensive vehicles etc unless you can afford them.

Cash Gap

• Understand your cash gap (the timing difference between outflows of cash and inflows)
• Renegotiate your suppliers terms
• Increase your stock turn (get your stock in and out faster)
• Be mindful of transaction dates (ie: ordering stock on the last day of the month or the 1st day of the month can make a major difference to the payment date.

Excessive Personal Drawings

• Calculate your total take out of the business (sometimes this number runs away from you without you being fully aware)
• Pay yourself a fixed, market related salary and avoid taking money as you need it (living out of the till)
• Ensure the business can afford your salary.

What We Do

We specialise in helping business owners make more money in their businesses. We do this through the use of a number of strategies and proprietary tools that we own.

FOR MORE INFO:

• Visit www.actioncoachignite.co.za
• Facebook: @ActionCOACHDurban