How To Improve Your Cash Flow Position In 4 Simple Steps

• Sleeping better

 

• They don’t have to miss out on all the things that they want to do

 

• Almost all of them have more financial stability

 

• They’re able to take advantage of any opportunities that pop up

 

• Less stress… MUCH LESS.

 

• More control over the expenses in the business

 

• They are able to handle emergencies so much better.

 

• And almost all of them now take their families on nice holidays several times a year

 

The 4 Simple Steps To Improve Your Cash Flow

 

 

Step 1 – Make More High Margin Sales

 

I opened up the crumpled piece of paper.

The CFO had told me that these 4 simple steps would show me how to improve my cash flow position.

I was excited.

And nervous.

Then when I read the first one, I was confused.

It said, “Make More High Margin Sales”.

Felt a bit obvious.

Although, he had said that it was easy. And that’s why so many people DIDN’T do it.

But as I was driving home, it hit me.

If a company does £100 in sales on a product with a 30% margin…

And let’s say this company gets paid half now, and half later, they might be in trouble.

Especially if they incur costs.

They only have £50 in cash from the first payment…

But could have to shell out £70.

Their £20 down straight away.

And even when they get paid the second half, they only made £30 profit overall.

It doesn’t seem worth it.

To be in a negative cash flow position for all that time, to make just £30 on the back end.

And that’s IF the customer pays on time.

Or IF their sales team doesn’t do a discount to win the sale.

So could something as simple as “more sales” be the answer?

The answer is… possibly, if the margin is strong and the cash flow from that sale is positive.

So if that’s the case, what’s the best way to make more sales?

There are lots of different ways to make more sales. But there are some principles that any good marketer or salesperson should stick to.

The best place to start, whenever you’re looking to get more customers, is market research.

If you don’t know your customer very well, you’re going to find it difficult.

Very difficult.

Market research is set up so that one day, you can strongly answer this question…

“How well do you know your customer?”

When the answer is… “inside out”, you’re on to something.

And what is it that you would want to know?

• Where do they buy?
• How often do they buy…
• What makes them tick?
• What’s stressing them out?
• If they were shopping for a business like yours, where would they look?
• And much more

If you knew where your customer buys from and how often the shop, would that change things for you?

What about if 80% of people that responded said they buy from Google and you don’t have a website? Wouldn’t that make you sit up straight in your chair?

If you want to get serious about growing your business, market research is a must.

 

 

 

Other marketing principles

Once you’ve done the research, it’s time to learn how to write.

The difference between a sales letter, email, or advert that’s written by the average business owner, and one written by a great copywriter… is night and day.

If you haven’t had training in copywriting, you’re going to find it tough.

Especially if you’re going up against someone that knows what they are doing.

But when you get copywriting nailed, you’ll:

• Be able to write adverts and articles that make you more than £15,677 each.
• Increase the profitability of your business
• Write effective articles that talk to your target market.
• Have over 103% more people read what you write.
• And be proud of the work that you do.

It can make all the difference in the world.

 

 

Especially if you:

Choose the right strategy

How do you know which one is the right strategy? Because you’ve done the market research and they’ve told you!

Combine the response from the market research with your data, and it should be pretty clear what’s best.

Now here’s the most important thing to understand about whatever strategy you choose.

You have to become bloody great at it!

That means studying.

Learning.

Getting on YouTube.

Picking up books.

Finding the “best in the world” and learning from them!

But if you can combine those three things…

1. Knowing EXACTLY what your customer wants, what’s stressing them out, and where they buy
2. Being able to write copy that sells
3. Mastering the strategy that you deem to be most successful

… then things are going to change around here.

But that’s just marketing.

What about sales?

Sales is about building trust.

Not trust as in “I trust you with my wife” or “I trust you with this £20”.

But trust that you can help them solve their problem.

So if you want to convert those new found leads, you’d better start building trust with your customers.

That means:

• No manipulation techniques
• No more telling lies
• Instead, stop telling, and start asking (questions)
• Then LISTEN to the answer

That’s the only way you’re going to improve your conversion.

A great salesperson knows how to ask great questions and listen to the answers.

And when they do, the prospects tell them EVERYTHING they need to know to help them.

Yes, there are times when you have to tap into emotion.

And you’d better make sure you’re testing different responses.

But ultimately, the main way to increase your sales ability is by learning and studying.

 

Step 2 – Turn Those Sales Into Cash

 

Have you ever wondered why you’re accountant posted a profit on your year-end accounts…

…but you’ve got LESS money than you had this time last year?

And did you ever think to yourself, where the hell did that money go?

Well if you did, it’s time to fill you in on a little secret.

It’s ALL IN THE BALANCE SHEET.

Unless you paid yourself one hell of a dividend that is.

So where exactly is this cash in the balance sheet?

Well, it’s usually tied up in working capital.

Managing your working capital is a great place to look at when figuring out how you can improve your cash flow position.

In English, working capital means “cash that’s stuck in your business waiting to get out”.

And it usually comes in a few different formats:

• Accounts Receivable – Which is a posh way of saying “outstanding invoices”. If the amount of outstanding invoices that you have is climbing every month, someone’s not doing their job properly. So make sure you’re chasing those invoices and getting paid.
• Inventory – A posh way of saying “stock”. Same thing goes here. If your inventory is climbing every month but your sales aren’t, you’re just tieing cash up in stock. Be strategic about what you order, when you order it, and how much of it you buy.
• Work In Progress – Otherwise known as WIP. This means work that needs to be finished so that you can invoice. As soon as you finish the job and send the invoice, it moves from “work in progress” or “WIP” to “accounts receivable/outstanding invoices”. So get that work finished and the invoices sent as a matter of urgency!

If the cash isn’t here, and you didn’t pay yourself a dividend, then there’s a good chance you’ve paid off some debt.

Hey, that’s a good thing, go easy on yourself.

Most companies completely ignore the balance sheet. But if you have targets or goals on the 3 areas above, there’s a very good chance that you’ll turn the profit into cash much quicker.

 

 

Step 3 – Collect The Cash Quicker

 

Here’s another big one.

It can be a GAME CHANGER.

Collect your cash quicker.

The sooner the cash is in your bank account, the better.

And here’s how to do it:

1. Change your payment terms 
2. Finish the jobs so you can invoice (if that’s applicable to you)
3. Have someone chasing outstanding invoices, or better yet…
4. Set up a standing order or direct debit system so that getting paid becomes automatic

Small business owners are often guilty of being too relaxed about getting paid.

It’s time to pay attention to how long it’s taking.

And how you can get paid quicker.

Let’s look at these 4 things in a little more detail:

 

Step 4 – Pay Out Slower (Without P*****G People Off)

When I first read the 4th step, on that crumpled piece of paper that the CFO had given me, I spat my drank everywhere.

He came across as charming and charismatic.

What did he mean by “pay out slower?”

And then, like his magic had found its way into my heart with the other segments, it hit me.

If I was getting paid quicker AND paying out slower… my cash position was going to climb.

But what had actually been happening with most of our coaching members, is the exact opposite!

They’d been in a rush to pay outstanding invoices so it was “off their desk”.

And then getting paid late by their customers.

In some cases, they had invoices that were that old, they’d FORGOT ABOUT THEM.

Meaning, they never got paid.

They worked for free.

Let’s look at an example.

Let’s say a business has a bank balance of £100,000.

And their wage bill is £70,000 per month.

They have a job come in that’s worth £45,000 to them. And the stock that they need to buy will cost them £25,000.

In example 1, they pay the invoice really fast, and then struggle to get paid.

That will put their cash position down to £75,000 and that wage bill of £70,000 is around the corner.

It’s time to panic.

In example 2, they delay getting paid but ask for payment upfront.

That pushes their cash position to £145,000.

That £70,000 wage bill doesn’t look so scary now.

In example 1, the bank balance dropped to £75,000 with a £70,000 wage bill.

Yet in example 2, the bank balance grew to £145,000 with a £70,000 wage bill to pay.

I’m sure you’d feel the difference, right?

When you manage your cash flow well, by using a cash flow forecast or other tool, you’ll feel so much better.

There’s less pressure.

And you can make smart decisions again.

But make sure you’re not upsetting suppliers.

Talk with them.

Negotiate payment terms.

Try and push them back.

But keep them on side.

The worst thing you can do is make a rash decision to pay late and ignore their calls.

That’s going to get you put on stop.

 

Summary

The CFO was right.

And the 4 simple tips that he’d given me helped our clients gain over £10 million in cash.

I was blown away.

Not just by the tips.

Or the result.

But by how simple this stuff was.

If only people made the time to do it.

And think about it.

Because when they did, they were:

• Sleeping better
• They don’t have to miss out on all the things that they wanted to do
• Almost all of them have more financial stability
• They’re able to take advantage of any opportunities that pop up
• Less stress… MUCH LESS.
• More control over the expenses in the business
• They are able to handle emergencies so much better.
• And almost all of them now take their families on nice holidays several times a year

And it’s time to take action for you too.

Whether it’s learning more about:

Cash flow forecasting

What cash flow really means

or

How a coach can help you with finance

It’s time for you to get stuck in.

And if you’ve found any useful strategies for managing cash, we’d love to hear them. So please, share them in the comments box below.