Bad cash flow has nothing to do with sales … but everything to do with how you spend your money …
In fact, it’s decisions to lease something and pay over 5 years, or to take on another type of monthly commitment that kill a company more than anything else.
Imagine running your business, bringing in a great deal of money and then finding out that there’s not enough to cover your bills. It literally happens every day, in fact, it would amaze you how often companies go under, right after their highest period in sales.
For just one reason … they have literally no idea how to manage their cashflow …
Easily more than 80% of the business people I meet have no idea about the cash gap, and even less of an idea about how to work a budget and keep to it …
The cash gap is the difference in timing of when you buy something and have to pay for it, it then sits on the shelf, or is a wage for a person at a desk and then it might be 90 days later or longer you sell it, and then 45 days later still you get paid for it. The cash gap here is 90 days shelf/desk time and 45 days until you’re paid … so 135 days or 4 and a half months that you have to fund.
Now imagine you had to fund 135 days in a company that grew at 10% and you had 10% margins, well you would almost never get to do anything but re-invest the profits back into the company, now triple the growth rate to 30% with the same margins, and you will KILL the cashflow unless you can reduce the GAP …
It’s basically where you think you’re making a profit when you’re really not. You see cashflow is about timing, NOT profitability …
This week I had another session with business owners where I get people to run the numbers on their business for and hour or so. We work out your real gross profit, your weekly expenses and the total number of sales you need each day, or week, or even hour to make a profit …
Learn your numbers or have a look at it next time you meet … if you need help contact one of my business coaches at www.tafastrack.com.au
All the Best … Adrian Caruso
