Increase Your Cash Flow in 60 Days
By: Renee Daggett
Part three in a series of three on increasing your profits and cash flow in 60 days:
Every business at some point struggles with cash flow and lack of profits. The period can be short, or it can be long. Either way, it may feel like you are drowning, struggling to cover expenses.
Running a business is challenging. It is not for the faint of heart or the fearful. It is like a rip tide. Business owners are swimming directly to shore and they are exhausted. But swimming parallel to shore is counterintuitive at first. What we are recommending will feel the same way!
Yet, someone must do the swimming if there is going to be rest and safety. It all starts with the leader. The good news is that there are things you can do in the next 60 days to change the numbers on your financial statements. Only you can make these changes. Time to grab your swim trunks!
What products/services are covering the expenses for the company? Which ones are draining the cash flow? Do you know?
Make a list of the products or services you sell. Calculate which ones are more profitable. Take your gross income (the amount you deposit from your customers) and subtract what it costs you to make or produce that service (labor, materials, workers compensation insurance, continuing education, technology directly related to client work, etc). The net of those numbers is called the gross profit. Take your gross profit and divide that number by the gross income and you will get a percentage. Your goal is to be at 30% or more. Here is an example:
Gross Income = $100,000
Costs = $ 70,000
Gross Profit = $ 30,000
$30k divided by $100k = 30%
You need to shift your thought process…think of gross profit FIRST, then revenue. Who cares what your gross income is! What really matters is that you are profitable. I have seen many businesses have high income, but no profits and boy, are they stressed out!
I had a general contractor client come to me. They have two divisions: commercial and residential. When I asked them what percentage they do for each division, I found out that 90% of their income came from commercial and 10% of their income came from residential. When I asked them which division was more profitable, they answered that residential was more profitable. If this was your company, what would you do? Hopefully, you would increase the residential work and stop doing as much commercial work.
Another situation where a photographer said that her weddings were the most profitable service when compared to portraits. However, when she delved deeply into the time and cost of each product offering, she found that weddings were not profitable and she spent all day on her feet killing herself for what she thought was profitable. Just because you deposit thousands of dollars on one project does not mean it is the most profitable. Sometimes your lowest revenue item can earn you the most gross profit.
One thing that can hurt your profits is having too many products or too many service offerings. Become an expert at something. Niche. Would you rather have a general practitioner operate on your heart or a heart surgeon?
When you know which products or services provide the highest gross profit, focus your energy on those! I challenge you to list out your products and services and take a close look at what they really profit.
What do you want your business to look like 2 years from now? What is preventing you from having that now? YOU.
If you don’t expect your mechanic to drive your car for you, don’t expect your accountant to make business decisions for you. With that said, we can only make recommendations. It is up to you to TAKE ACTION. Grab your towel…you’re gonna get wet!