In my experience, when I talk cash flow with business owners, especially in the coaching or service industries, I usually get one of the 3 following responses:
That haunted stressed look you know is a result of waking at 3am most mornings, with a panic about bills that are due next week and you don’t know if you have the cash on hand to pay for them.
When they say “I don’t really worry about that, I leave it to my accountant / book keeper / partner”. But when diving deeper, they haven’t delegated, instead they have abdicated responsibility and don’t proactively manage cash flow. Instead they react to problems.
often followed by “oh you mean profit?”
TRUE CONFESSION: I have had every one of these responses at different times in my business.
If any of these sound like you, you will absolutely love our topic today and my guest Patty Block, who so calmly and methodically makes this topic simple to understand.
And because Patty and I are both passionate about making it easy for you to take action THIS WEEK, we include actions steps so you’ll feel confident about whipping those finances into shape like a total boss!
Our guest expert, Patty Block helps women in service businesses. In everything, she values relationships above all. So when working with clients, Patty takes a holistic view. She helps them with financial strategies, implementation, pricing, cash flow, talking to their accountant, and different models and plans used to grow their business.
In her work, she finds that a lot of people overlook cash flow because it scares them. Instead, they leave all that to their accountant who usually uses language they don’t really know. If you don’t try to understand and figure out your cash flow, how will you know you have a problem coming up that can compromise your business?
The intention at the end of the day is for you to take control of your finances. Your cash flow will become something you’re calm, happy, and proud of rather than a stressor that sits at the back of your mind all the time.
"Cash Flow is Less About Having The Money And More About The Timing."
Let’s start by making the distinction between cash flow and being profitable.
Being profitable means having enough money after paying all your bills that you can reinvest in your business by getting new equipment or hiring another person. Or, you could take it for yourself and live the kind of lifestyle you want! That’s profitable, right?
Cash flow is less about having the money and more about the timing. If you have money in the bank but not the week before you need to process your payroll or pay your vendors, that’s a cash flow problem. It’s about having money when you need it and managing how it flows in and out of your business.
"As a Business Owner, it is your Job to Worry About the Money"
I love this quote from Patty as it is a real reality check.
As business owners, it’s our job to worry about money.
It is YOUR responsibility
You will never stop worrying about money. What you have to do to worry less is to know what to look for, watch out for red flags, identify obstacles, and how you can deal with these things.
Patty finds that the more she teaches her clients about how to handle their cash, they become more relaxed, confident, and the more they can focus on other areas.
It’s actually empowering to accept that responsibility and make it your obsession.
Number one thing is Fear. Numbers aren’t your thing. You aren’t good at maths. You don’t understand all the language, the jargon, the accounting. Sometimes we get too busy and gravitate instead to where we’re comfortable.
This is why it’s very helpful to have someone who can help you figure out the ins and outs of money, timing, and how you can change it.
I have Bazza da Bookkeeper for that, who creates cash flow forecasts for me.
Bazza means I can sleep better at night!
"Pay the Money You Owe As Slowly As Possible Without Damaging Relationships"
Case Study: Patty had a client, let’s call her Sally, who didn’t know what a cash flow issue was even though she was running a successful and profitable business. She had eight employees paid every two weeks so not having the money at the right time kept her up. Her bad credit record meant she couldn’t borrow money to fill these needs, resulting in missing bills and ruining relationships with her vendors.
These were red flags she had a cash-flow problem in her business and if not addressed, her business (and sanity) would always be at risk.
There are always consequences you have to face. Unsteady revenue results in a tremendous amount of emotional stress and it keeps you from being able to focus on really positive aspects of your business.
Trouble managing your cash flow doesn’t make you a bad business person. It just means this is an area you haven’t paid attention to. You just need to place some procedures around that.
Working with women business owners, Patty found that women tend to undervalue ourselves and we underprice. There is no rationale. A lot of us say that we price within what the market can bear but the truth is, no one really knows that. Each market is different. Price appropriately and the right customers will come to you.If you need help with this, check out The Attract Your Tribe program. An important module in this program “Package For Profit” includes an expense and break-even calculator for determining pricing and sales goals, plus how to package and price your programs.
3 Areas That Affect Cash Flow:
2.Seasons & Cycles
In THE USA (Patty’s home) November and December are slow for service companies because it’s the holidays. People already spent their money, so they’re less likely to invest in the spring. Then it picks up again and drops around summer when the kids are on summer vacation. That’s specific to the US, but the point is that there are patterns and trends you can anticipate when it comes to your cash flow.
In Australia December is also slow and January can be difficult to get people’s attention because us Aussies continue to chill-out in the summer 🙂 One thing that really comes up and bites people are tax payments, so anticipate that as well.
Launch Models Online can also cause cash flow problems A lot of online businesses have a launch model. At launch, there could be a generous amount of money. But take note that the cash you have right now may not last you long enough. You need to be able to foresee when you need to start making more money. Safety nets are also important.
This is the money you have left after paying the bills. This is money you can choose to keep in your business, to take for yourself, etc. The point is for you to have a choice what to do with it. If you’re not profitable, you have no choices.
You need to be able to strike a balance, set expectations, and what you want to achieve in your business. While we all want to grow our companies in a way that would be meaningful to us and those we can help, we also want to make money. If you’re not charging enough, you’re not going to be profitable.
”If your business is always only at break even, what’s the point?”
One thing I love saying is…
"Revenue is Vanity.
Profit is Sanity."
A lot of people want a million-dollar business, but how much of that is actually going into your pocket so you can have the lifestyle you want? There are people with businesses that have a much lower revenue but higher take-home. Think about that when growing your business.
You need to be serious about invoices, when you expect payment, and then having a collections process. Invoices should always be accurate and sent to the right place or email address. The goal is to get paid as quickly as possible in full.
One of Patty’s clients implemented “Collections Monday”. Monday because you want them to start the week with you in mind. Why? If you call them on a Friday afternoon, chances are they aren’t going to take action.
"Collect Money That's Owed to You As Fast As Possible"
Every Monday, the client printed out a report of who owed her money and started sending friendly, proactive emails. She then followed up 10 days after the invoice, 20 days, and 30 days after. After a few months, they found that they no longer have to make calls. Her clients have been trained to pay on time because they know you’re paying attention. A lot of clients think “Well, they haven’t invoiced me”.
Now, they don’t have an excuse! I love this idea and now, challenge you to implement what I now do in my business: MONEY MONDAYS
"Start Your Business Week With Money Mondays"
You aren’t not paying them. You just pay them on a schedule. Prioritize what needs to be paid first. As an employer, you will want to prioritize paying your employees and contractors. Take a look at your cash flow and determine when you can pay your bills and set a schedule for it. In my experience (and Patty’s) a lot of women want to pay bills as quickly as possible because they pride themselves in paying immediately and on time. Many think that paying late would have people regard them as irresponsible. But you ARE being responsible, to yourself.
Collect it quickly, spend it slowly, and determine what’s need-to-have and want-to-have. If you need to hire or contract work, or upgrade to new equipment, prioritize expenses for that and fit it into a cash flow analysis. There’s a tool that Patty uses for her clients that helps them monitor their cash. By looking at it that way, you can make very wise decisions on how you use your cash.
I get Bazza da Bookkeeper to use a simple spreadsheet to forecast cashflow. It doesn’t need to be rocket science.
Part of understanding the cash cycle is having a good handle on this cash in and out. It gives you confidence and allows you to make good decisions without playing the guessing game.
Cash Flow Tip:
Collect Money Quickly, Spend It Slowly
Patty has an ebook that you can download on her site, theblockgroup.net.
The ebook helps you look at three main areas: finance, operations, and planning. It guides you as you analyze what’s working in your company, some of the early-warning signs, how to address growing issues, and provides you with a framework so you can understand the sources of stress in your business. She also has a pretty robust blog and you’re more than welcome to use all of the resources available.