Many try, few succeed. Around 5% of businesses get to celebrate their tenth birthday, 95% do not. Business is a long game, not for the feint hearted. Amongst the death and carnage along the journey, what is it about the 5% that keeps them alive and thriving whilst those around them disappear. After working with hundreds of businesses and business owners over the last thirty years, these are my top seven tips on what it takes to be in the top 5% and make it to your businesses tenth birthday and beyond.
You get into Business to get out of it
There is always a reason why people go into their own business. Very few have a strategy to get out of it once they are in it. Almost none have a sense of what their business looks like when it is complete. The key drivers of what you are wanting to achieve lack definition and hence then do not become the motivator you though they would. Clarity and focus will help keep you end game alive and drive your business outcomes towards it.
The #1 reason businesses fail is that they run out of cash. Revenue is Vanity, Profit is Sanity, but Cash is King. Business owners do not intend to let Cashflow run dry, this is an outcome of other factors in your business. Running your business by your bank balance, rather than having an updated Cashflow Forecast, is a sure sign that your business is not in the top 5%.
Financial reports are great at telling you what your business has done and are not a good indicator of the future, especially in the current turbulent times. It is only after knowing what Cashflow commitments we have ahead of us can we determine what we have available now. Money in our bank does not mean it is available. The reverse may also be true, identifying a problem ahead of times gives you the opportunity to act sooner rather than later.
Profit ≠ Cashflow
A quick cursory glance at our monthly Profit and Loss might indicate a Profit for the month, however Businesses can show Profit with negative Cashflow. Alternately a business can be in a loss position with a positive Cashflow. Command over Cashflow determines your business survival, not your Profitability.
Keep some in Reserve
The businesses that had significant cash reserves, prior to these uncertain times, are most likely the ones that are most likely looking for opportunity now rather than fighting for survival. Things happen, things go wrong, and we need to expect the unexpected. This is not just pandemics; business is a risky sport. Having available Cashflow for unexpected turbulence is a key part of making sure your business sits in the top 5%.
Is there Cashflow hiding in your business
Getting a good handle on your business and Cashflow cycles will help you prioritise freeing up Cashflow hiding spots. You might not see them as Cashflow however excess stock on the shelf, on the factory floor, Debtors or surplus assets are all forms of Cashflow. Running your business at less than optimal efficiency, with a little excess capacity for growth, also can strangle your bank balance.
Is your Balance Sheet sucking Cashflow also? Do you have financing and loan repayments that by-pass your Profit and Loss to drain your Cashflow? Are you getting sufficient return on your investment here? Do you have a cash-gap in your business cycles and are you able to get it to zero or below? Using other people’s money to grow your business makes life a great deal easier!
Cashflow-ology ═ Cardio for your Business
Doctors recommend a good Cardio work out for us all each day to keep our heart in shape. Cashflow is the blood flow of business, keeping it pumping and minimizing the chance of blockages is fundamental to the health of your business. Like a Cardio workout for your heart, giving your business Cashflow a solid 45-minute workout each day helps keep your Business in great shape and inside the top 5%. A daily workout will help keep you and your business fresh, fit, focused and in the top 5%!
By Paul Roach, Business Strategist who has worked with hundreds of SMEs across many industries to supercharge their cashflow.