Articles Tagged ‘Profitability’

Six Ways to Speed Up the Flow of Cash

Thursday, November 7th, 2013

Protecting your company’s cash position and insuring that you have adequate cash flow in future months is critical in our current business climate. The US economy is flat at best, political leadership is anti-business (just look at the tax rates kicking in January 1), the banks are wary of any business without a AAA credit rating, and climbing health care costs are still an issue. If there was ever a time to be “cash flow” diligent, it is today.

What do you do? Here are 6 proven techniques you can use for immediate cash flow improvement:

Profitability – Typically we don’t correlate profit with cash flow, although they are directly tied together. Businesses that are losing money will have more cash flow problems than business that are making money. As we get close to the end of the year, don’t let your accountant talk you into spending a bunch of money to lower your tax liability; sometimes it pays to pay a little in taxes to protect your cash flow and your equity position in your company. If you are making money, your chances of maintaining a positive cash position are very good.

Revenue – This is the first step in cash flow; without a sale, there is no cash to flow. Growing revenue is a positive contribution to cash flow so keep your sales people more accountable on hitting monthly sales targets. Develop a monthly revenue forecast. This can be done by department, geographic area, product line or for each sales person by customer. Be realistic in your forecast, based on historic trends – will your forecast be conservative, moderate or optimistic? Measure each sales person’s performance monthly in a sales meeting. If you need to, take the next step and start measuring behaviors of each of your sales people with call reports (some will already have a pipeline report in their CRM) but look at contacts, presentations, closes and dollars sold per month.

Accounts Receivable – You can improve your collections with these steps:
●Review your A/R report weekly.
●Review each account that is over 45 days old – what is being done? Are promises being made? Get informed on who is paying slowly.
●Get out in the market and talk to your slower customers – see what is going on. You would not believe what impact a “presidential” sales call has on revenue growth. I once encouraged a business owner to call on a slow client and he was appalled at what he learned, but he was 90 days too late.
●Invoice weekly instead of monthly.
●Fax or email each invoice – don’t rely on snail mail.
●On slow accounts, consistency is the key
●Get a good collection agency working for you. I recommend Al Holdren at Atlas Collections in Muncie 765-751-3210.

Inventory – less is better. Inventory is not cash and the less you have of it the better you are from a cash flow standpoint. Work out a plan with your supplier to see if they can deliver more often, convert your old inventory to cash, and measure your current inventory level against your current revenue level – you probably have too much inventory on hand. This is typically the place where dead money sits but few business owners realize it.

Borrowing – make sure you have maximized this resource. If you can restructure or refinance some existing long term assets at today’s low rates, you should jump on it. Although credit is harder to obtain, there are still lenders out there looking to lend money. Exhaust this ability by putting together a good business plan with your company’s last two year’s performance and start looking. If you noticed, many large companies are going to the bond market and building large cash resources at very low costs. We have been very successful in helping business restructure debt, lower interest costs and lower payments to really improve cash flow.

Accounts Payable – more is better. Although suppliers are also tightening up on credit policies, you can normally leverage this relationship for longer terms on repayment. If you are in trouble with your suppliers already, talk to them and show them your plan to repay and how they are going to make more money in your account by selling you more product. But don’t make any promises you cannot keep on repayment because that will hurt you in the long run.

A little bit of focus on these key areas will improve your cash flow dramatically.

Dan Lacy
Growth & Profit Coach, Financial Strategist, Cash Flow Doctor, CEO Mentor
dan@dynastybuilder.com
phone: 765-644-8887

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Profit – The Truth

Monday, May 14th, 2012

Too many business owners struggle with the importance of pursuing profit in their businesses. You probably struggle with this in your business, too. Why do I use the word “struggle”? Because there is little reinforcement or support for the importance of profit from bankers, accountants, our professional peers, or even those we spend time with in our personal lives, including family and friends.even our church families. This lack of understanding and support, combined with what you hear 24/7 from news outlets have managed to turn “profit” into a six-letter obscenity. Frankly, our culture knows very little about business, and it’s this underlying knowledge deficit that has made profit synonymous with greed.

But make no mistake: Profit is the most powerful term in the business lexicon. Despite this revelation, we too often forget what profit can do for us in our businesses. Let me define for you why profit must be a prime objective for your business:

Profit increases cash in the business: Profitable businesses grow their cash position if they are not using that money to reduce debt. So if you want more
working capital (and have cash-on-hand for just about anything), profit will create this opportunity.

Profit increases equity in the business: Profitability (flowing into retained earnings) is the primary way to increase equity in your business. The amount of
equity directly impacts leverage and this impacts how fast your revenue can grow.

Profits provide more money for shareholders: When a company is profitable, dividends can be paid to those who have invested in the business. In other words, their risk
can be rewarded.

Profit increases the ability of the company to borrow: The debt-to-worth ratio is one of the key elements lenders look at to determine if a business will be granted
more debt. If the company has three dollars in debt for every dollar in equity, borrowing more money is probably not a viable option. Profit is the key to help
leverage your ability to borrow.

Profit funds growth: Growing revenue creates growth in accounts receivable, inventory and other assets. If one side of the balance sheet grows, the other side
has to keep up and that only happens with increases in liabilities and equity. Businesses that are not profitable will have limits on revenue growth.

Profit pays down debt: Profitable companies will pay down debt much faster than those businesses that are just getting by. Profit becomes cash which can be used to
reduce or pay off debt.
read full article »

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New Economy, New Model, think in the box

Thursday, June 30th, 2011

Businesses today are learning to cope, survive and then hopefully thrive in this “new” economy. Change for most people is painful, but for entrepeneurs it can be the best of times. Most of the long-term business owners I have worked with are linear thinkers. They aren’t afraid of processes. They actually lean on processes to function at the highest of levels. The volatility in the market today is calling for entrepreneurial thinking. An economy with $4.00 a gallon gas, housing starts in half and manufacturing as well as low-level labor being outsourced across borders.

The key to evolving your business model in this new economy is to define the “box” in which you reside, specifically define the sides of the box that make up your business.

1. Exceeding client expectations
a. How do we blow our prospects or customers minds with results and or “the” experience? Many times we will face some initial push back on changing the way we deliver our service in the new model so the results really do need to speak for themselves.

2. Budget, Profit and Stakeholders

Are we holding to a budget? Is the company making money and are employees happy and evolving? If these things cannot be met then our model is not sustainable, which means capital and people will eventually wear out.

3. DNA

Do we have the people to really get it done or how can we even leverage our people on a greater level to create more abundance? What are we doing that is against the organization’s DNA? I find in working with companies that when you simply ask the question, “What could you be doing if you didn’t do that anymore?” Or, if you fired that one high-maintenance client, how many more could you serve? The overwhelming theme is relief, power and the ability to once again accept challenges. Let’s face it businesses are just groups of people working towards common goals. If they feel good about their life, about their job – they will make the impossible, possible.

4. Time

Do we have the time to accomplish this change to survive the valley during the implementation of our new plan read full article »

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One Man’s Journey – The Profit Struggle

Wednesday, December 15th, 2010

Last week John called and wanted me to help him develop a 12 month forecast (profit and loss, balance sheet and cash flow) that his bank was demanding from him. John was a God fearing man, worked over 70 hours a week managing his company and the 30 employees that worked for him. His company had not made a profit last year (doesn’t anybody read the papers, it is tough out there) and yes cash was tight; but he was still in business, making his payments on time, meeting the needs of his customers and making payroll.

John said that since late last fall, his banker has been very concerned about his company’s ability to make a profit by year end and now since he hadn’t, his banker was demanding more information on a more frequent basis. John didn’t understand what all of the fuss was about. The company was not profitable and probably wouldn’t be profitable until the economy turn around. John had been through these down turns before and always came outof them, what made this one different?

The story behind the story. What John didn’t realize was his banker had
been reviewing the company’s financial statements for the last 9 months and
it shows that although the company had met payroll, payroll taxes and bank
payments, it was getting further and further behind with its payments to its
vendors. The company lost $400,000 last year and accounts payable had
increased $490,000 in the same period. The vendors had paid for the
$400,000 in losses and also picked up the $90,000 in principal payments the
company had paid down on their term debt.
read full article »

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