This year, one of your main goals should be to understand everything about money when it comes to your business. It is just about the most important task you have as someone in charge of a business. Failing to do so can cause a chain reaction and force you to make financial decisions you might not otherwise make if you did have a firm grasp on the financial health of your business.
“I need to find a collection agency fast for my business. Or, “I’m looking for a collection agency to help me get paid.” We hear this all this time and in many cases, it’s because a business owner didn’t take the time to pay attention to the details of their finances and now they realize their cash flow is suffering. It’s a bad situation to be in but not one that can’t be solved through a little preparation and understanding.
Here’s the thing-Cash flow is the backbone of your business. Without it, the result is pretty clear. You either can’t pay your own bills or you go out of business entirely. And many times, negative cash flow is the result of not paying attention to certain numbers and indicators in your business.
You most likely pay attention to sales, customer service and other areas of administration. And you need to focus on the numbers. Staying in business is all about numbers.
Let’s discuss some of those numbers that you need to keep a close eye on:
Cash flow. We just used that word a couple times and we’re going to use it again. Because you need to have this part of your business be top of mind each and every day. In short, this is the amount of money that goes in and out of your company and you need to have a solid handle on this. As a collection agency working with small businesses, we get calls all the time from owners that realize their cash flow is not where they thought it was. And now they need help.
We highly recommend that if you have any questions about where your cash flow stands, that you sit down with your CPA. Even your bookkeeper can walk you through this but the point is to sit down and cover it all. Establish where your money is coming from and where it is going. Also, establish where that money is. For example, is it all in one business checking account? Is it tied up in other areas? Is it tied up in receivables, which we would argue is not really money yet. In short, get a snapshot of your cash flow on a regular basis. At least once a month.
Sales Figures. Of course, closely related to cash flow are sales figures. In fact, they somewhat drive cash flow. Let’s get real simple about this. No sales, no money. No money, no cash flow. See how important it is to understand your sales numbers? When it comes to focusing on any numbers in your business, consistency is the keyword here. We know some in business that review their numbers daily. Some every month. Once again, it is important to have a dedicated time set aside at regular intervals to review your sales figures. Where is that money coming from? Is it large accounts or small accounts? What products and services are doing well and which are lagging behind? Find out and keep a close eye on them.
Gross Profit It’s not really enough to just set a price for a product or service because you think that’s what it might be worth. You have to understand your gross margins. This goes for both products and services. We think you know this but if you are not charging enough to make a clear profit from your products and or services, cash flow and your business overall suffers. Hopefully you have gone through this exercise at least once. But guess what? Circumstances and expenses change. And you need to review your gross profits regularly.
Receivables. Yes, this is absolutely 100 percent related to cash flow. But they are in some respects, separate numbers. In short, it’s the money that is owed to your business. I think most of us do know that much. But not all receivables are the same. We won’t get into a full accounting lesson here. We’ll leave that to your CPA. But in short, you need to know who owes you money, the age of that receivable, how long they have owned you that money and when that payment starts to become a cash flow issue for your company. There are so many more aspects of accounts receivables that your accountant can help you understand but if you just get a handle on how much you have out there that’s not coming in on time on a monthly basis, you’ll have a much better idea if when it might be necessary to get help in the form of a collection agency. Collection agencies are not all created equal so find one that fits your values and understands your business.
Expenses. We know you like to pay your bills on time but when was the last time you laid all your expenses out in front of you and took a good hard look at them? There are a number of expenses you need to get a handle on. First thing to look at is those ongoing regular payments for items such as subscription services. Maybe they are memberships to online resources that bill you monthly. When was the last time you used those services and do you need them anymore? If they are on automatic billing, you may be wasting money.
Other expenses that can get of control quickly are office supplies, some equipment and your utilities. When it comes to utilities, many times these packages or bundles change without you even knowing. If you check in from time to time, you may find that your business can save some money by changing the phone or internet services you are using. Other expenses include travel such as local mileage check for staff or travel to conferences and meetings. If you have staff that are booking first class plane tickets, well, maybe it’s time to stop that policy…
Numbers drive your business. It’s that simple. Without a firm understanding of the numbers behind your organization, you’ll find yourself scrambling for cash in record time. Depending on the size and complexity of your business can determine the level of help you might need but if you don’t have a solid grasp on where your business is and where it is heading in both short and long-term, get help. Get a bookkeeper, a CPA, find a reputable collection agency, sales manager or other professionals that can help you move forward.