Tag Archives: business problems

It’s all about the money, honey

If you’re in business the chances are that you need to make money.

The aim of the game is to have something left after all the bills are paid whether that’s because you want something for yourself, to pay dividends to investors or, if you run a social enterprise, to do some good for the wider community.

Cash in business Quite often I hear the complaint “We’re not making any money” but what does this mean? There is no point in any business at which money is actually made!

In simple terms we think of “making money” as making profit – when sales income is more than all the appropriate costs.

What people actually mean when they say they are “making money” is that there is plenty money in the bank to pay the bills that come in. Making profit doesn’t always mean that there is money in the bank.

In business nowadays the chances are you buy on credit, and you offer credit to your customers and you buy more stock that you need straight away so that you always have something to sell. All these things separate when the money is received (or paid) from when the sale actually happens.

So making money is actually more to do with generating cash.

Cash is king for businessIn basic terms, a business which consistently makes losses will only be able to pay all of its bills if there is extra cash being provided from somewhere else. If my costs come to £5,000 but my sales are only £4,500 I won’t be able to pay all of my bills, there will need to be a bit of negotiation with suppliers or some savings to fall back on.

However making money isn’t simple even if the business is making profit.

It’s possible that I could be making profits and still not bringing in enough cash to pay all the bills when they are due.

Most obviously, if I buy stock for selling on in future I will likely need to pay my supplier for the stock before my customer has paid me, but if my customer hasn’t paid me how can I pay anyone else?

Accountants usually make some changes on paper to spread these sorts of costs over the year and match them to the sales that they relate to, but in cash terms my suppliers need the money more promptly to pass on to their suppliers.

What’s even more tricky is finding cash to invest in the business’ facilities. Buying a new delivery van has very little impact how much profit you make because only a small-ish part of the cost of the van relates to the sales in any given month, or year.

When it comes to paying for the van though, even with a hire purchase loan you’re going to need to pay a chunk of the cost as a deposit. That’s going to hit the bank balance.

So making money involves more than just selling for a profit. Cash may be king, but cashflow is complicated!

In my view the only way to tackle the cash challenges that every business faces is to plan ahead. Add to that a bit of action to make sure that:
– customers are paying,
– you’re not paying out for more stock than you need and
– you are making the best use of credit offered by suppliers
and you will be giving yourself the best chance to make money (and hold on to some of it) whatever stage your business is at.

Cash is kingThis is the first in a series of blogs looking at cash flow and ways to improve it, all filed under the “Cash is King” category.

Sowing the seed of a solution

Sow the seed of an idea to your staff
Humans are funny creatures. You can present a person with all sorts of perfectly logical, suitable solutions to their problems but you can’t guarantee that they will buy into any of them.

Maybe they don’t understand the solution, maybe they don’t like the changes that you suggest or maybe it’s just that it’s your idea not theirs. But whatever the cause the cliche “you can take a horse to water, but not make it drink” is very true.

I have come across this problem more often in a work setting (although it definitely comes up a lot with children, or my children at least). I guess part of the resistance is due to lack of understanding, part a simple resistance to change and part vanity (the “its not my idea” part).

You can’t usually force people to take your advice, so how can you get around these barriers?

It’s important always to focus on what’s right for the business or people concerned. That means leaving your EGO out of it!

My preferred tactic is to try to “sow a seed” of my idea:- introduce the idea, but then stand back and wait for the idea to grow in the other person.

The idea needs the right conditions to grow – more information about why the problem occurs, what the effect is, reasons why the solution you have proposed is right.

It also needs time to germinate…

But in the end the plan is to work with the other person to help them recognise the value of the solution, and feel that they have an equal part in coming up with it so that the problem is solved one way or another.

Note to my clients: This is not inspired by any client past or present, it’s a musing from helping someone else solve an issue with their colleagues!