I was recently having a chat to a client and he asked me if I had any advice for him in terms of running his business. I took a deep breath because I knew I had a lot to say and it might take a while.
But the core of what I said really was that small businesses owners, in fact all business owners for that matter, need to know, understand and master the cash drivers in their business.
So what are the cash drivers in business? Lets make a list, there are 7 of them:
- Sales Growth - Pretty obvious, but keeping sales on an even keel has a profound impact on your cash flow. The fastest way to run out of cash is to have hyperactive sales.
- Gross Profit - Building and maintaining solid margins is just so important. Small changes in your pricing can have a massive impact on your bottom line and cash flow.
- Sales,General & Administrative costs - Once again, pretty obvious but these are your fixed costs.
- Accounts Receivable - this is a key ingredient in staying solvent, making sure this does not blow out.
- Accounts Payable - making sure bills are paid when they are due and not before, making sure you have negotiated appropriate trading terms.
- Inventory - holding appropriate inventory so that you don’t run out of stock, but at the same time, keeping a decent amount of stock turning over, the shorter the better (providing it doesn’t affect your service levels to your customers).
- Cap-ex - How you pay for your equipment can have a massive impact on cash.
Learn to manage the above cash drivers and watch your business grow.