Most professionals running their own firms know, when asked is cash or profit more important what the “right” answer is. Why then do most of them not think in terms of the right answer when reviewing their business?
Cash is king?
Yes it’s that lovely phrase and it is so right. Without cash you have no business, you may have the best professional services firm in the town, but…..
If you’re looking to increase your cash flow where might that cash come from?
- Debtors – who owes you money? Why are you acting like a bank and lending people money?
- Prospects – How can you tighten up your existing terms so you get your cash more quickly?
- Work In progress and stock – What stock (or old assets, such as PC’s etc) do you have sitting around that are soaking up cash that could be in your bank account? OK, so you might not make as much as you once hoped on that stock – but if it’s not going to sell anyway, isn’t cash worthwhile?
- For more ideas about managing cash flow I wrote a 10 point plan for managing cash flow- click here
Cash rather than profit?
The aim of a business is to generate cash in your bank, not generate theoretical profit. Ask yourself when thinking about pricing a new quote, do you work out the profit and then at the last minute think about “payment terms” (maybe), or do you think about cash – how much you’ll get, need to spend and when?
You might say they amount to the same thing, but sometimes it’s the little changes in the way we think about things that make all the difference. If you start to focus on cash, so will your staff.
Cash and long term planning
Do you have a strategy covering the next few years? Does it involve changes to the way your firm operates now?
A professional running a dynamic and growing firm normally has ideas to grow the firm, that means things change. But have you planned what that might mean to cash? One business owner I know had growth ambitions and was planning on doing a lot of seminars as a way to grow his business (excellent idea linked to the trusted expert sales strategy) – except he failed to put the cash implications into his plan! Did you read Cash Flow Planning – What might keep your business alive?
What have you seen firms do to manage their cash position?
Written by Jon Baker The 5-50 Coach. I help professionals grow their firms from 5 to 50 employees, sustainably, profitably and still have fun. Have you got your "next step kitbag yet"? It's stuffed with guides, reports & templates helping you grow from 5 to 50 employees. Click here for your copy.