Improving Small Business Cash Flow ppt

Improving Small Business Cash Flow Craig Alexander Orr MBA, MSc, HND Copyright 2011 Craig Orr Smashwords Edition Discover other titles by Craig Orr at Smashwords.com: Finding Cash in Your Business - http://www.smashwords.com/books/view/62199 If you have access to the Internet you can jump to the enhanced content of this book by clicking on the links below. The links will connect you with the podcast, the blog, presentations, the obligatory twitter feed and of course the website www.craigscopy.com. Cash in your Business Podcast slideshare Blogger Twitter Any trademarks, service marks, product names or named features are assumed to be the property of their respective owners, and are used only for reference. There is no implied endorsement if they are used. Finally, use your head. Nothing in this book is intended to replace common sense, legal, medical or other professional advice, and is meant to inform and entertain the reader. So have fun finding the Cash in Your Business. Smashwords Edition, License Notes Thank you for downloading this free ebook. You are welcome to share it with your friends. This book may be reproduced, copied and distributed for non-commercial purposes, provided the book remains in its complete original form. If you enjoyed this book, please return to Smashwords.com to discover other works by this author. Thank you for your support. Table of contents Chapter 1 - Introduction Chapter 2 - The Cash Flow Formula Chapter 3 - Focus on Cash Customers Chapter 4 - Strategic Solutions Plan Chapter 5 - Conclusion Chapter 1 Introduction Cutting costs and improving Cash Flow is where all small businesses need to be right now. The big question is where do you start? This guide provides the steps to help you to rapidly find the Cash buried in your business. Recently the owner of a small business said to me I am quoting for more business opportunities than ever before, converting less, constantly running short of time and my costs keep going up. He showed me into his office where ring binders full of quotes that had not converted to orders were stacked in waist height piles, taking up valuable floor space. May I first say that these guys were experts at filling quotes, with a keen eye for methodical approach, and if that had been their core business they would have been very profitable. Mentally I could see cash sticking out of the ring binders and falling onto the floor. He asked me the obvious question why have I lost out on so many quotes? His business was a car body repair shop and rather than provide an answer to a subject I knew nothing about. I asked him to indulge me as we started to evaluate how much money he had invested in creating the stacks of quotes. The results were staggering in one year alone he had investing about two years wages, which had ultimately feed through to his bottom line costs and explained why he was busier without seeing any improvement in cash flow. Small businesses cannot afford the luxury of doing “business as usual” in a recessionary environment it is critical to re-evaluate how your business operates. Download The Business survival workshop - http://www.smashwords.com/books/view/73829 to focus your business on what you do best. Cost cutting can be a bit like liposuction, providing an unsustainable quick fix, unless you make the required life style changes the problem will quickly comes back. This short guide will provide pointers to help you assess where you may have developed habits that are stopping you from being more profitable. First stop is a process of Cash Flow triage; identifying where the big issues are. Once the issues are identified it’s time to create a strategic solutions plan. This enables the small business to achieve the greatest returns within the shortest amount of time. The strategic solutions plan will ensures that the life style changes required to sustain cost management and improve long-term business performance become embedded into the day to day running of the business. The Cash Flow Formula was developed after extensive research into understanding and improving the way companies handle Cash. The circular wheel shown below is the ‘aide memoire’ to drive a systematic approach to the analyse. Each of the segments in the circle are broken down in detail in the various resources available at http://www.craigscopy.com and in the Finding Cash in Your Business ebook- http://www.smashwords.com/books/view/62199 Cash in Strategy With most of the world’s economies at their worst condition since World War 2, as never before a clear “Cash in” strategy plays an important role in a small business’s success. In today’s turbulent competitive environment, companies more than ever need a “Cash in” strategy that keeps reminding them of the competitive advantage achieved by being smarter with cash. As the Global recession bites it is important to review your current business product or service and customers mix as a priority. It may be that your order book is still full making you feel insulated from the recession. When in fact what you are actually experiencing is the effect of customers who are progressing orders that were approved years in advance, and the current market condition may not take effect for months or years. The key question here is can your customers still afford to pay? AIR In preparing for the future your small business needs to: Adapt to the market conditions; create an action plan based on what products and or services are most likely to continue to be sold in a recessionary environment. Initiate collaborative discussion with existing customers and suppliers who are struggling. Review existing and target customers and set new credit limits and create risk bandings based on which companies are most likely to survive. Remember you cannot live without AIR. Adapt to the market, Initiate Dialogue and Review Customers. Chapter 2 The Cash Flow Formula The Cash Flow Formula has been adapted to help you develop a systematic approach to understand and improve the cash flows within your businesses. The Formula knits together a number of accepted management techniques such as ratio analysis and Pareto to arrive at the Cash Flow Formula. The Formula can be started at any of the seven segments, especially if you already have identified areas of concern, or a segment dose not apply to your company, however, generally in small business environment jumping straight to Credit Control will have the biggest impact on improving Cash Flow. Here are the 7 segments: Competitors Identify the key customer requirements used to compare you with your competitors. Focus the business on improving those key customer requirements. Communicate the improvements to your customer base. Cash Flow by Company Focus in on the area of the company that is expected to demonstrate the highest returns in the medium term. Where there is high growth potential the greatest opportunity for poor financial controls exists. Business Model Analyse your business model against the business’s current performance. Challenge yourself as to if the business model is still current and the operational strategy derived from that is still correct. Internal Accounts Take a close look at the Internal Accounts. Graph them over a 4-month period and compared them to the previous years results over the same period. This trend analysis is used to highlight areas where cash flow improvements are required. Product contribution Determining which products have the greatest contribution to the company’s profits can be used to focus future product developments and withdrawals. The highest contributing products will have the greatest impact on the management of Cash flows. Cash Flow by Product/Service Detailed deconstruction and mapping of the Working Capital Cycle (WCC) for each of the products is used to determine which products or services provide the best use of cash within the business, it also ensures that suppliers credit terms are controlled and managed effectively. Credit control. Analyse when customers pay their bills so that irregularities can be identified before large debts are amassed. Understanding the key dates in the WCC for a product or service allows better use of the credit given by vendors and the debt owed by customers. Chapter 3 Focus on Cash Customers Whether you are a small business or a large corporate “Having too many customers can break you, and focus on Cash Customers is essential!” What many businesses don't get, is that the customer acquisition and maintenance cost are normally far greater, than the money the customer will spend with you on their first sale. On average a business need to bring each customer back at least 5 times before they will begin to generate a profit and become good quality Cash customers. One business I looked at had just over 700 customers, but was struggling to sell into their customer base. • Initially I asked for a historical list of how much each customer had spent with the company. • My next question was how many customers regularly do business with the company. Of the 700 only 70 regularly did business with the company. • Now comes the crucial question ‘of the 70 how many pay their bills on time or at all?’ now we are down to 30. • I then asked for credit ratings for the 30 left and that brought the number of good Cash customers down to 20. The company had made the fatal mistake of not understanding the cost of customer acquisition and maintenance. The expectation was that all customers are equal and so they were shared out equally amongst the sales staff. The average business spends 6 times more trying to win a new customer, than it does generating new business from an existing customer. In recognition of this fact the solution required a combination of reducing the size of the sales team and providing a more appropriate level of account management. The company now focuses on supporting the top 20 accounts with sales executives. The other 680+ accounts are managed by a combination of a telesales team and the bailiffs. A typical fully loaded Sales Executive cost to the business was £100,000 and there were 30 in the team including managers. Each sales executive handled over 20 customers. The business was spending around £3m supporting customers who had no intention of buying. In fact only 1 out of every 35 customers was worth supporting. Contrary to popular opinion creating a smaller Sales team increased motivation, productivity, salary and sales. The new smaller team had a reduced management overhead and had improved the profit from existing turnover by around 7%. The Sales executives had more time to spend with each of their customers that meant they delivered a better quality of service and this in turn encouraged the customer to place more orders. It was true that the business had redeployed staff but by doing so it more than just secured the jobs of all that remained. The business was now running much more efficiently, it has seen an on-going improvement to turnover, and is in a much better place to manage the growth of the sales team going forward. Chapter 4 Strategic Solutions Plan Small businesses suffer at the hands of large businesses, as the pain of recession passes down the food chain. Small businesses are being asked to take drastic action, drawing up wish lists of things that need to be completed to improve their Cash position as the banks begin to recapitalise and ration financial support. Time is critical, focus is paramount and a strategic solutions plan is essential. Banks no longer role out the red carpet, and angel investors want to see if the companies they invested in are capable of generating free cash flow (FCF) before they decide to invest any more money. The working capital cycle shown below is an integral part of understanding a business’s capital requirements, it’s capacity to service external debts, it’s ability to sustain growth and it’s potential to generate free cash flow. Using the Cash Flow Formula to highlight the areas that will provide the biggest improvements in Cash flow in the shortest period of time a strategic solution plan can be implemented. The plan ensures that the life style changes required to sustain cost management and improve long-term business performance become embedded into the companies’ culture. The strategic solutions plan should include the following;  The detailed cash flow evaluation highlighting areas of concern  A detailed improvement Solutions report detailing any changes to the way the business needs to operate. The report should include any 3rd Party Supplier proposals required, and a proposed implementation timetable. No matter where your finances are today, improving Cash Flow will help you to optimise or transform the performance of Your Business. Chapter 5 Conclusion This guide has provided you with an overview of the steps required to analyse and improve the Cash Flow within your business; recent market conditions have had a dramatic impact on the global markets, and as never before the lifeblood of the cash needs to pump through your businesses arteries. The global economy has started to contract and is unlikely to revert back to the heady days of double-digit growth, at least for a while. So, for a while it will be hard to raise a loan or equity capital, except for companies already generating free cash flow or those with a strong emphasis on cash control. So the key to surviving the global credit crunch is to look for cash in your Business, find it, handle it well and look for the golden opportunities it creates. ### About the Author: Craig is a Business strategist with a fresh market perspective combining technological awareness, deliverable experience with strong cost management and leadership skills. Craig likes to think of himself as the engineer who understands costs. Craig holds both an MSc from Cranfield and an executive MBA from Bradford. He has assisted Companies from start up to FTSE 100 in nearly every region of the world for over 25 years. He states “that to survive in today’s competitive marketplace companies need to focus on their core strengths, and outsource the areas that do not differentiate them from the competition.” Whilst completing his studies Craig remodelled the business plan for the company he was working for making them the most cost aware and successful business in the sector. That success propelled him into BT where he was responsible for targeting outsourcing opportunities, which now generate revenues in excess of £200m, and supports all targeted communications providers. Discover other titles by Craig Orr at Smashwords.com: Finding Cash in Your Business - http://www.smashwords.com/books/view/62199 I’m sure on the basis of this guide you’ve got questions and comments. I trust the information shared has struck a chord with you. There’ll be other areas you want me to expand upon. Either way I want to hear from you… Connect with Me Online: Smashwords: http://www.smashwords.com/profile/view/craigscopy Podcast: Cash in Your Business podcast Blog: http://craigscopy.blogspot.com/ Twitter: http://twitter.com/craigscopy . Improving Small Business Cash Flow Craig Alexander Orr MBA, MSc, HND Copyright 2011 Craig Orr Smashwords Edition Discover other titles by Craig Orr at Smashwords.com: Finding Cash in Your Business. in cash flow. Small businesses cannot afford the luxury of doing business as usual” in a recessionary environment it is critical to re-evaluate how your business operates. Download The Business. Customers. Chapter 2 The Cash Flow Formula The Cash Flow Formula has been adapted to help you develop a systematic approach to understand and improve the cash flows within your businesses. The Formula