Navigating COVID and the aftermath is an unprecedented challenge for businesses and business owners globally. What was a well-run business pre-pandemic may now be facing an uncertain future or fast-tracked into oblivion. Where it was difficult enough before, now the challenge is potentially harder. Tougher challenges require a different type of thinking. This requires us to be at our most calm, thoughtful and 100 per cent on the ball. Where we have previously travelled on a set pathway, we now may need a significant change of direction.
Here are the first five of my top 10 cashflow sins and how to avoid them to help keep cashflow in your business.
1. Nothing to learn here
When your business is small, and you can have a fairly good handle on cash inflows and outflows. However, running a business is more like sailing a yacht. As the owner, you need the knowledge on how to tack when the wind changes direction and you are trying to sail forward. You need a map and compass to guide where you are going, warn you of reefs and sandbars, keep you away from the shoreline and guide you to calm waters when storms are approaching. If you only ever have skills to handle calm waters, then turbulence can send you under. Learning the rules of cashflow and how to avoid unexpected turbulence to stay afloat is one of the most critical skills to master in your business.
2. Business is not personal and vice versa
I have seen a significant number of business owners who have drawn a very poor line between business and personal finances. In many situations, they have not controlled the amount of money they take out of the business or ensured that they paid the appropriate amount of tax. If an owner can freely put his hand into the business bank account, there is every chance he is going to take more than what he believes he is taking. It may well be his business and ultimately his money, but if this is happening in an uncontrolled fashion, it can put a strain on the business cashflow.
3. No plan = no cashflow
Having good cashflow requires planning for it. This includes setting your business up for success from day one. Make sure your sales to cash receipt cycle is fast and you review any outstanding debts regularly. Keep the cashflow coming in. Set up some extra bank accounts to transfer funds into for known cashflow items like PAYGWH, Staff Superannuation and GST. Transfer the amounts across when each payroll is processed for the first two and at the end of each month for the GST.
4. Discount your cashflow to disaster
Reviewing and updating pricing regularly is part of the role of a business owner. Minimising discounting and reviewing the level of discounting consistently requires effort and the right cashflow mindset. Keeping a keen focus on market changes and competitor positioning will help maximise each opportunity. I see businesses regularly leave historical discounting in place even though circumstances have changed.
5. Drive your business, but know your cashflow breakeven
Now is the time to go through your numbers, preferably by hand! When you write your numbers down on paper, you gain real cognitive learning experience and a better understanding of exactly where your cashflow breakeven point is!
Next time, I will take you through the second five of my top 10 cashflow sins and how to avoid them to help keep cashflow in your business.
Paul Roach, business strategist and author of “Smarter Business Stronger Cashflow”
