The 7 causes of poor cashflow
The 7 causes of poor cashflow. Cash is the life blood of any business. In fact, even profitable businesses can and do fail because of poor cashflow. What’s important is that you understand your key drivers of cashflow. Improving cashflow is often all about changing your business’s processes, for example, how you order stock and pay for it, how you bill for your services, and how you make sure you get paid by your customers. Don’t treat the symptoms of poor cashflow without fixing the underlying causes! Inadequate cashflow is a symptom of management problems in a business, NOT the cause. In order to fix these underlying causes, you need to make the necessary changes to your processes. By making these changes, you will build a much better and valuable business, as well as improve your cashflow. While there are many causes of poor cashflow, most relate to one or more of the following seven categories. 1. Your cash lockup.This is the cash that isn’t in your bank account because it’s locked up in work in progress (work you’ve done but not yet billed for) or you’ve billed your customer but are waiting for payment. 2. Your accounts payable process.If you don’t have spending budgets in place and aren’t taking advantage of the best possible supplier terms, your cashflow will be impacted. 3. Your stock turn.If stock is moving too slowly, it will take longer to turn the stock you’ve already paid for into cash. 4. The wrong debt or capital structure.For example, if your loans are being repaid over too short a term, this will place a big strain on cash reserves. 5. Gross profit margins are too low.Your gross profit margin is what’s left from sales after variable costs are deducted. If it’s too low, it won’t be enough to cover fixed expenses and your drawings from the business. 6. Overheads are too high.Every business should do a thorough review of its overheads each year. 7. Sales levels are too low.If sales levels don’t support cash demands on the business, then sadly, the business is not currently viable. “If I had to run a company on three measures, those measures would be customer satisfaction, employee satisfaction, and cash flow.” – Jack Welch
Xero’s Customer Success Story – Enduring Relationships
In April 2018 Xero NZ invited us to feature in a Customer Success Story. In this promotional campaign, Xero invited us and our client Ken Sines, business owner of Made In Metal, to feature in the success story. Naturally, we accepted and participated in a few days of photos and video at our respective premises. Xero now use the case study and videos to promote on their website and across social media. You can read the full Customer Success Story and see the videos over on the Xero NZ website here: https://bit.ly/XeroCustomerStory
The Traits of Success – Discover the Three Freedoms
What makes up success is something we’ve had to think a lot about. At Maisey Harris & Co, helping businesses become successful is what drives us in what we do. But we’ve learned that success isn’t as easy to define as simply having a profitable, growing company. If you ask what success means to people, you are likely to get a wide range of answers. Or you’ll find out that they’re not actually sure, that they haven’t thought about it. It is important to know what success means to you. If you don’t understand what drives you, you will pour time and energy into things that give you no return. You need to know what will leave you feeling like you’ve accomplished something at the end of the day, not leave you frustrated and dissatisfied. Luckily, it isn’t so hard to find out what success means to you. Because, though the question may bring a myriad of responses, in the end, we’ve found that it generally boils down into three concepts: Freedom of Mind. Freedom of Time. Freedom of Money. For some people, it is simply achieving a well-oiled machine that defines success for them. It is being able to go to bed each night and not be kept up by stress. For them achieving freedom of mind is what makes them feel successful. Where they no longer have to constantly be worrying about the next bill payment, or the next issue that may arise. They want to know their business is running smoothly. For others it is being able to walk away from work and spend their time doing other things. They want to have a shorter work week, and see more of friends and family without being called away by their business. Success would be having freedom of time. And then, for the rest, it is seeing their business become profitable that drives them. Watching their bank balances rise, and seeing the cash come in from their hard work. It is knowing they have enough money to pay off all their bills. That they don’t have to worry about an emergency happening, or stress about how tight their cash flow might be. Reaching freedom of money is what leaves them feeling successful at the end of the day. Make sure you identify which freedom calls to you. Knowing what it is will help you guide your business’s direction. It will allow you to set and achieve goals that leave you feeling good, rather than ones that leave you dissatisfied. We’ve learned that, when helping clients create business plans, or set quarterly goals, we need to figure out what success means to them first. Because there is no point working harder to create more cash flow when it is having the ability to step away from your business, and spend more time with your family, that actually means something to you. So take a moment and consider what you think success looks like. And if you want help reaching that, feel free to reach out! We are always here to help, whether it’s numbers that you’d like taken care of, or business advice that you need. Thanks, the MHCO team.
Living above the Line – Understanding O.A.R.B.E.D
Ownership. Accountability. Responsibility. Blame. Excuses. Denial. Which side of the line do you live on? The acronym O.A.R.B.E.D is one that MHCO has striven to live by for a number of years now. For within it are very important reminders for how each and every one of us should try and shape our actions. But why is O.A.R.B.E.D so important to us? A business thrives on a strong team, and we believe team and client relationships are massively important to success. The quality a business provides is essential, but more and more people are looking for more than just that. Just as employees are looking for more than just a job in a field that interests them – for millennials, it is now the workplace environment that means the most to them. So how do you create a strong team that works and plays well together? How do you create relationships with your clients that they can put their trust in? By always making sure that everyone lives above the line. That we all pick up the oar to guide our way, and acknowledge how important the above attributes are. For O.A.R.B.E.D is more than just another catch phrase to quote for a while, and then forget once its novelty dies down. It is a way to guide our actions, to ensure that we don’t slip below the line every day. So how do we make sure that we use O.A.R.B.E.D? By understanding it, by looking at our own behaviours, and recognising whether they embody above the line traits, or slipping below it instead. Ownership. Accountability. Responsibility. If a job is given to you, rise up to meet it, and take ownership of it entirely. Work hard on it, and strive to do your best on it. By making yourself accountable for the quality of the work produced, you become invested in the job. You challenge yourself, and hold yourself responsible for the end product. The hard part of this is acknowledging that where things go wrong, this also falls on you. But it is this awareness that will cause you to strive harder in order to avoid failure. It is not easy to clasp hold of the oar and take full responsibility of where the boat goes. But whether team member or client, you will earn respect from those around you, as well as encouraging them to do the same. Blame. Excuses. Denial. Three simple words that have a very large impact. Any time behaviour slips towards them, trust and respect is lost, eating away at the relationships that have been built up. Passing blame, always having an excuse on hand, or just straight denial, is all a way of shifting responsibility to someone else. And in a team this can easily shatter goodwill and break the team apart. As for clients? It won’t be long till they are looking to go elsewhere. Where they can get what they need, along with honest, upfront communication with people they can rely on. Focusing on personal growth Over all, O.A.R.B.E.D reminds us to look inwards, at our own actions, rather than outwards at everyone else’s. And that is one of the reasons we like it so much. We don’t want to spend time focusing on what other people do, or trying to pull them down just to make ourselves shine a little bit brighter. We’d rather remain focused on bettering ourselves, and our business. To acknowledge where we may have weaknesses, and work to fix them. Living above the line means all round positivity, growth, and happiness. Don’t you want to join us there? Thanks, the MHCO team