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A training class for business owners, showing that increasing sales is seldom a cure for cash flow problems. Now, let's talk about cash flow. Over the last several years I have been conducting training classes with accountants all over America on cash flow. The class was designed to help your accountant work with you on cash flow solutions.
When we did a survey of small business owners this past summer we found that the number one question among business owners, the number one problem, was that they wanted to increase sales. But as we asked follow-up questions on this "increase sales question," we found that most business owners really wanted to simply increase cash.
That is, the reason sales was listed as the hot button, was because most people believe that is the secret to more cash. I am here to tell you that increasing sales will almost always cause more cash problems than it will solve. Here is why. Increasing sales requires more advertising, more time spent on selling, more employees to handle the workload, extra phone lines, more inventory, and more accounts receivable.
If I were going to improve my cash flow, the first thing I would do is tighten up the ship internally and then after I had a very good handle on my internal procedures, I might move out to build sales. Now keep in mind that I'm a salesman by birth. And for me to say something like this is amazing. But it comes from the experience of going broke.
If you are going to be in business, you have to be a businessperson first, and sales person second, and a worker or producer third. By working with spreadsheets on where my profits are coming from, I discovered that a lot of products are more trouble than they are worth. The most interesting thing I discovered is that a lot of customers are more trouble than they are worth. I even figured out that some employees are a lot, LOT more trouble than they are worth. As a matter of fact, the problems that I have had in my business are the exact same problems that your accountants have told me that you have been having in your business. I asked them in the training seminars to list what business owners do that cause them to suffer cash flow problems.
I have my office manager prepare spreadsheets for me on accounts receivable, on inventory, product sales, sales by sales person, and even by territory. We had to have someone come in and set up the formulas, but it certainly makes operating my business a lot easier than guessing or hoping. Plus, when I see that I'm running out of money it's hard to ignore the problem when the numbers are on paper right in front of me.
Now, you can even do spreadsheets on products in inventory. This can help you understand which products move in and out the fastest. Remember, Wal-Mart can operate on 4% gross margins because it has 72 inventory turns a year. If you are only turning six times a year you have to work on 32% margins to match their profit. Plus they start from a lower cost basis than you do. It is hard to compete on price with big players, so you are much better off selling on value, if you want to keep your cash flow up and keep that cash register ringing.
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