Managing cashflow to grow your business is not the easiest thing to do. With cashflow forecasting being one of the main pain points for many small businesses, here is a great perspective from Tracey Loubser. She is a Calxa Partner and the founder of multi-award winning business, Confident Cashflows. Tracey’s experience in working for small business has provided her with the insights to help business cut excessive outflow and ensure financial stability.
This Article first published in REIWA’s PERSPECTIVE magazine – March 2017. Permission was given by author for this article to be published here.
Growing your New Business
In businesses – the buck stops with you, the business owner. You know only too well how the money side of things no longer just sorts itself out somehow.
Growing a business in these times is more likely to see you constantly hanging on by your fingernails, waiting for money to come in while trying to work out whom to pay first – staff, suppliers, or the tax man. You want to start recruiting that new staff member, but your bank account is hurting.
If you’d like to see an end to the monthly money drama in your growing business, I have some suggestions.
Financial Clarity in Buckets
The key to running and growing your business smoothly and profitably on a consistent basis lies first in separating out its distinct categories. We first need to understand the profitability of each bucket, so that we can then investigate the time invested into each bucket and improve efficiency.
Let’s use a Sign Writing business as an example. This type of business sells shop signs, billboard signs, promotional signs and vehicle signs and wraps. These include over 80 different signs in these categories. Outdoor signs, Indoor signs, Promotional signs, Vehicle signs and the Admin Costs related to these are what I call the ‘buckets’ of this type of business.
Each bucket must have – and be seen to have – its own inflow and outflow. Separating them out (as much as you can) shows how much is going into and out of each bucket. It also helps as a reminder that the Admin Costs bucket needs to be supported by inflow (profits) from the other buckets. For example:
How much does the Outdoor & Indoor sign bucket make after paying?
- related staff wages for indoor and outdoor signs
- specific material, printing and installation costs
- motor vehicle costs / crane hire related to these jobs.
How much does the Promotional sign bucket make after paying?
- related designer cost for these jobs
- specific material, printing and freight costs
- postage costs to the customer
How much does the Vehicle sign bucket earn, after paying?
- related staff wages for vehicle signs
- specific material, printing & installation costs
What does it cost to run the Admin side of the business?
- support staff
- bookkeeping costs and the like
You don’t need to overspend if you have identified any buckets of your business that exceed your outflow limit. Noticing how other buckets may be perilously propping it up, you can take timely action to rebalance your buckets. This can also help to investigate time spent by you and your staff on each of these areas and determine what the most efficient and profitable buckets are. We all want to know how can we make the most amount of profit in the least amount of time.
Leaky Buckets Make for Leaky Bank Accounts
An unprofitable area – a ‘leaky bucket’ – is more serious than overspending. Why? Because in spite of its low-to-zero inflow (profit), that unprofitable area still attracts its own related bank outflows. And the effect on the bank account can be dire.
The times may be challenging as you grow, but you don’t need to find yourself scrounging and scrabbling to deal with GST and PAYG withholdings from salaried staff – not to mention tax office demands for settlement of businesses tax debts and PAYG instalments.
Remember also that leaky buckets also attract their own element of over spent time, which you can never get back.
No less than a lawyer or a medical practitioner, a plumber, or any other business for that matter, needs to fully understand where and how the ‘water’ is flowing at any given time, how it might be leaking in destructive ways, and what can realistically be done about it. This is the most important step before spending more money on growth.
Take the following steps to learn the truth about how much money each distinct area of your business is making– and how much it needs.
- Identify the average monthly amount of profit made by each “bucket”.
- Identify how much money is needed to support the Admin side of your business – support staff, insurances, bookkeeping, rent etc. (Remember to account for your own wage).
- Does the money made from each bucket cover this? If not, exactly what is the shortfall?
Facing the reality of a shortfall is an uncomfortable experience. If the situation looks unsustainable, then you will need to either cut costs, or find a way to ensure you consistently earn that dollar value.
Clarity gives you Power
With the figures, clearly visible, you can determine your flexibility regarding future quotes to prospective customers, as well as areas that may be more profitable to grow in a shorter amount of time.
Sometimes it may be better cut back on certain service offerings which drain your profit and time before you take the steps to grow. I have witnessed businesses cut back on offerings and in return enjoy more money and more time.
Here’s to your freedom from the cycle of scrounging and overspending.
About the Author
Nearly 10 years ago, after a 5-year stint with Deloittes, and a brief stint in corporate, Tracey Loubser made the conscious decision to NOT be a normal tax and compliance accountant. Instead she became a “let’s-get-this-business-achieving-its-potential-and-make-more-profit” accountant. After achieving great results for many SMEs, with Calxa as an integral part of her product delivery, she became known as The Queen of Cash Flow. Through Tracey’s multi-award-winning business, Confident Cashflows, Tracey has helped many business owners achieve higher profits & improve their cash flow.
Five years ago she launched Confident Cashflows PLUS, where she trains, coaches and mentors accountants to follow her Turn Key program and learn from her experience to deliver successful Financial Performance products with their clients.
Tracey has been recognised among her community as a leader in her field. She has won many awards including 5 local chamber awards, Best Home Best Business in Regional WA in the SBDC awards, and was Top 8 Finalist in the Nationally based Australian Accounting awards in the Thought Leader category.