Cash Flow: The Life Line Keeping Your Business Afloat

When operating a business, the amount of money you make and spend, or cash flow is one of the major indicators of its ability to thrive or likelihood to struggle. This comes as no surprise.  We’ve all heard the saying that cash is king. That is especially true when running a company. Phillip Campbell, CPA, the former chief financial officer for multiple successful companies and a respected author was quoted as saying “Despite the fact that cash is the lifeblood of a business — the fuel that keeps the engine running — most business owners don’t truly have a handle on their cash flow.”  

If you’re a business owner, and you’re not aware of the amount of cash flowing in and out of your business on a regular basis, you’re setting yourself up for failure.  Below you will find vital cash flow related definitions, the benefits of knowing your cash flow, and 5 questions you can answer to ensure you know your business cash flow.

Cash Flow Related Vocabulary Defined

Profit

According to Investopedia.com, “Profit is a financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity…”

Simply put, profit is the amount of money you make in your business minus the expenses.  It is how much money that remains once all of your bills are paid.

Your goal is to have a hefty profit, that’s the only way you make money.  Too often business owners confuse profit with our next term, cash flow.

Cash Flow

Also according to Investopedia.com, “Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business…”

Therefore, cash flow is not one number, it speaks to the overall flow of money in your business which paints a broader picture of your financial status.

A company can have a positive cash flow with no profit depending on the source of their funds.

For example, if a business takes out a business loan and sees an increase in cash flow that month, their actual profit might be zero because of their need to take out a loan.

A business can also be profitable and have no cash flow.

For example, if you contract with companies who delay their payment, you could have a cash flow of $40,000 with $10,000 that still hasn’t hit your bank account.  If your monthly expenses are $45,000, that means you are profitable, but your cash flow is not positive.

Revenue

According to BusinessDictionary.com, revenue is “the income generated from the sale of goods or services, or any other use of capital or assets, associated with the main operations of an organization before any costs or expenses are deducted.”  

Revenue is also known as sales.

Why Knowing Your Cash Flow is Important

Knowing the monthly cash flow of your business is vital for many reasons.  Here are 5 significant reasons why you should make knowing your cash flow a priority.

It Indicates Financial Health

Knowing your cash flow indicates the overall financial health of your business. It showcases your company’s ability to pay its bills and handle other financial responsibilities consistently.

Being unable to take care of your financial responsibilities, or having a lot of your revenue tied up in debt indicates that your financial health is failing.

It Indicates Your Ability to Generate Cash

Knowing how much money comes into your business every month and how much you have left at the end of the money after paying all expenses helps you to understand your ability to generate cash.

Keeping track of this consistently provides you with an overall cash flow projection which you can use to indicate your ability to cover expenses in the future.

It Highlights Your Debt

Because cash flow indicates where your money is going each month, the payments you make to your creditors are highlighted.  By bringing constant attention to these debts which are taking hold of your incoming cash flow, you can focus on paying them off.

It Gives You Flexibility

When your business has a positive monthly cash flow, it gives you flexibility.  

You can use your positive cash flow to invest more in your business and make choices that will lead to increased revenue.

When faced with a dilemma, you have the opportunity to make choices that will best fit your business because you have the cash available.

Questions to Answer About Your Cash Flow

When you’re working on improving the health of your business and thus your cash flow, you must know what to look for in the process.  As you review your cash flow, here are a few questions you should be able to answer.

• What’s the difference between profit and cash flow?
• Where does my cash go?
• Do I have hidden cash flow (ex. debt)
• How much cash does my business have?
• How much cash does my business need to operate?
• Where does my business get and spend cash?
• How do my income and expected income affect the amount of cash I need to expand my business?

Cash is king in business and knowing your cash flow will help monitor your financial health to keep your business afloat.  When you’re running a business, you get busy, but reminding yourself of why knowing your cash flow numbers is important can help you keep it at the top of your priority list.  

As you work towards becoming a cash flow king (or queen), remember you should always be able to answer the cash flow related questions listed above.   If you have the cash to keep your business afloat, you are more likely to stay in business as long as you keep the cash flowing. Keeping track of your cash flow is key to knowing your financial health and in indicating your future ability to remain in business.

Cash flow is just a part of running a successful business.  Ensuring all of your employees are engaged in the practices of your company is a necessary skill as well.  When you’re ready to make sure your employees are involved as you expand and grow, download my free book, 5 Tips to Improve Employee Engagement. Click here to get your copy today. C

Improve Communication Skills and Increase Sales in 6 Steps

Business isn’t all about the numbers, metrics, and analytical data.

The communication skills you have when interacting with your clients or potential clients can have a significant impact on your annual revenue goals.  When your objective is to increase business sales, it’s vital that you consider how effective your communication skills are.

The definition of communication according to the BusinessDictionary.com is a “two-way process of reaching mutual understanding, in which participants not only exchange information…but also create and share meaning.  In general, communication is a means of connecting people or places.”

In sales, your communication skills are what move your clients from no to maybe to yes.  They are what clear their confusion. They are what helps them bypass internal objections.  They are what helps them decide to pay the invoice and sign the contract.

Improving your communication skills takes practice, but the more you do it, the more natural you become.  Read on to find 6 steps you can take to improve your communication skills and increase your business sales.

Be an Active Listener

Listening is a challenging practice for many because we often don’t listen to understand; instead, we prepare our response.  Being an active listener encourages you to focus on what your potential client is saying. It gives them the sense that you’re interested in the conversation and boosts rapport.

These 3 steps can help you be a better listener and improve communication skills.

Pay Attention:

Give your client your undivided attention.  Don’t get distracted by your thoughts. Don’t allow your environment to cause interference.  Don’t prepare your response while listening. Instead, acknowledge what is being said and make your potential client feel like they have your full attention because they should.

Show You’re Listening:

Your body language indicates to your client how much you’re listening.  Show you’re paying attention to what’s being said by using both verbal and nonverbal cues.  Non-verbal gestures include nodding your head and smiling. Verbal cues include saying “uh huh” and “okay.”  When giving verbal cues, be sure not to interrupt your client. At this stage in the conversation, your goal is only to make your client feel heard.

Reiterate or Gain Clarification

When communicating, it is okay to reiterate what was said or ask for clarification when you’re at the appropriate phase in your conversation.  This might include you saying things such as

“What I hear you saying is…”

“Do you mean…when you say…”

“What it sounds like you’re saying is…”

Pay Attention

Paying attention is a component of being an active listener; however, it’s worth mentioning again. As stated previously, it’s important to be physically and mentally available during your conversation.  This includes ignoring all internal and external distractions.

When you are not paying attention, it’s off-putting to your potential client.  It demonstrates that you’re not serious about your conversation. You also appear unprofessional and as if you’re only interested in how the partnership will benefit you.  When you’re trying to make a sale, you never want a potential client to have those thoughts about you.

Pay Attention to Body Language and Tone

Professor Albert Mehrabian, current UCLA professor, came to the now famous conclusion that communication is 7% verbal, 55% body language, and 38% voice tone.  When you’re engaged in a conversation, pay close attention to the body language of the person you’re speaking with. Body language is displayed in a variety of ways including

Facial expressions

Body movements

Posture

Eye contact

Spatial distance

Touch

In some instances, it’s best to improve your communication skills by mirroring the body language and tone of whom you’re speaking to.  If their tone is formal, make sure yours is as well. If they smile, you smile also. This strategy should be done naturally so as not appear to be a mime.  When you mimic their body language correctly, it often makes them feel more comfortable with you and like your conversation is going well.

Be Honest

Honesty is a sales technique that doesn’t often come to mind. Just because you’re in the position to sell something, it doesn’t mean you have to reduce your moral capacity to that of a sleazy used car salesman.  Be upfront about what you know and don’t know. Be honest about what your product or service can provide. Be forthcoming with the results of your product or service. If you come across as dishonest, it will significantly decrease the likelihood that a sale will transpire from the conversation, and your potential client will be unlikely to speak highly of you or your firm to others.

Be Knowledgeable

When you’re trying to get a potential client to purchase your product or service, you are charged with being the expert about that product or service.  You should know the ins and outs of what you’re selling. Be aware of the benefits and what type of client it best suits. Know the typical objections people have to the purchase of the product or service and have a rebuttal ready for any doubts.  Also, know what people love about what you’re selling. Having this knowledge will help you have a conversation beyond mere facts and figures. Being knowledgeable builds the know, like, and trust factor you have with your potential client.

Focus on Solutions

When involved in a sales call or meeting, your goal is to listen actively to your potential client and showcase how your product or service can be a solution to their problem.  Always discover what their problem is and take the role of a problem solver. In business, people generally make purchases to serve as solutions. If you can adequately communicate how what you’re selling solves their problem, you’ve won half the battle.

When you’re working to make a sale remember that you’re speaking to a human being, not a business.  It’s acceptable to behave in a personable manner. It’s okay to have a goal based conversation without it feeling sleazy and sales-y.  People buy from those whom they know, like, and trust. Help your potential clients know you, like you and trust you, so they feel comfortable signing the contract and paying the invoice.  

Developing excellent communication skills shouldn’t just be geared toward one person in your business.  This concept should be shared amongst everyone from the top down. Increasing employee engagement so they are actively committed to improving communication skills is the way to go.  Whether you have a team of 5 or 50, you can download a free copy of my book, 5 Tips to Improve Employee Engagement here.  You will find tons of actionable strategies you can implement to ensure your entire team is engaged and ready to improve communication skills.

The 5 Benefits of Strategic Planning For Your Business

 

The term strategic planning is frequently used in business, but you might find yourself asking, “what is strategic planning?”

Implementing strategic planning sets a business up for success.  If you analyze the name, strategic planning is simple. It’s a process of planning the actions you take in your business strategically instead of making decisions on a whim or duplicating the efforts of other successful companies.  However, there’s a bit more to strategic planning than meets the eye.

The 3 Steps of Strategic Planning

According to BusinessDictionary.com, strategic planning is “a systematic process of envisioning a desired future, and translating this vision into broadly defined goals or objectives and a sequence of steps to achieve them.”

To develop a full understanding of what the strategic planning process is, let us discuss the three steps further.

Step 1: Envision Your Future

As a business, you must have an idea of how your business will look in the future.  How will your business operate six months, one year, or five years down the road? What will your business structure be?  How many employees will you have? What will your profit be each year? Without the ability to conceptualize a future for your business creating a strategic plan is unattainable.

Step 2: Set Goals

Once you have a vision for the future, it’s time to make specific goals to help that vision come to fruition.  The best way to set goals is to make sure they’re SMART. SMART stands for specific, measurable, attainable, relevant, and timely.

An example of a SMART goal is, I will increase my consulting clients by 25% within the next 12 months.

It is specific and measurable because I can determine if my clients increased by 25% within 12 months by analyzing my metrics.

It is attainable because I set a reasonable goal.  

It is relevant because the goal relates to my business.

It is timely because a realistic time frame is included.  

Step 3: Develop a Sequence of Steps to Achieve Your Goal

Once you have your vision and your SMART goal, it’s time to develop a strategy to reach your objective. This is done by creating a step by step action plan.

Using the SMART goal I developed in step 2, if my goal is to increase the number of consulting clients I sign by 25% within 12 months I must

• Determine how many clients I need
• Hire a social media manager
• Attend two in-person networking events per month
• Speak to my current clients about referring others to my practice
• Update my lead magnet, so those visiting my website are added to my email list

Creating specific action steps takes your vision from an idea to a goal to reality.

5 Benefits of Strategic Planning

Completing the three-step process of strategic planning leads to numerous advantages in your business.  Below you will find five significant benefits of implementing strategic planning.

1. Increases Longevity

According to the Bureau of Labor Statistics’ Business Employment Dynamics, 20% of small businesses fail in their first year, 50% fail by their fifth year, and only 30% of companies make it to their 10th anniversary.

Having a strategic planning process in place increases the likelihood that you are making decisions that will lead to the long-term success of your business.  Your vision, goals, and plan of action are all surrounding the ultimate goal of your company advancing, therefore increasing longevity.

2. Provides a Sense of Direction

When you have a specific vision with SMART goals and an outlined plan, there should never be a question of where your business is heading.  Having a sense of direction will guide all of the decisions you make in your business. You will be able to effectively steer yourself and your employees as you make day to day decisions, increase efficiency and proactively work towards your goal.  

3. Makes You Unique

Many businesses are suffering from copycat syndrome.  They see other seemingly successful companies and copy their techniques without determining whether they best suit their business model. This leads to look alike companies being created.  

However, when you develop a strategic plan for your business that’s unique to your vision and your goals, you are free to develop specific steps that work for you and you alone.  You are free to show your marketing genius and creative ideas to reach your optimal level of success. Straying from the pact will set you apart from your competitors and provide you with a unique selling proposition.

4. Evaluates Progress

In developing your strategic plan, you are developing measurable SMART goals.  Because the goal is measurable, you can track your progress quickly and determine whether you are moving toward that ultimate vision.  Evaluating progress helps you to identify strengths and weaknesses in your business, strategy, and employees. Recognizing your strengths and weaknesses helps you to make decisions regarding additional supports you might need to bring on board or strengths you should utilize more as you work to reach your goal.

5. Sets Priorities

As a business owner, you are frequently inundated with tasks.  The goal is to focus on the most critical tasks first. Having a strategic plan will help you to identify the tasks that are most important and likely to move you toward your ultimate vision.  Those priorities are where the majority of your time, energy, and effort should be spent. When you lack priorities and view everything on your to-do list with the same urgency, you are failing to optimize your time effectively.

Strategic planning is more than just creating a plan for your business. It can be the difference between reaching your 10th anniversary, or not making it past year 5.  With a world full of competition in every arena, it’s important to set your business apart and prepare your business for success. Implementing strategic planning helps you to reach your goals the SMART way.

When developing your strategic plan, employee engagement and support is a non-negotiable. If you’re searching for a roadmap to increase employee engagement, download a free copy of my book, 5 Tips to Improve Employee Engagement here.  It’s packed with strategies you can implement to ensure you and your employees are on the same path to business success.

As the Economy Heats Up, the Fed Continues on Its Path of Raising Rates

On Wednesday the Federal Reserve lifted its benchmark rate by a quarter of a percentage point. For those not paying attention to monetary policy, this is the second hike this year.

As a small business owner or even a solopreneur paying attention to what the Fed does with rates is important to your bottom line. The state of the economy as well as interest rates can have a direct effect on your expenses, the pool of potential employees, employee retention, and a host of other things in your business.

As the economy has continually improved Fed officials have been split about whether to raise rates three times or four times this year. The consensus seems to be coalescing around the likelihood of four rate hikes in 2018.

The premise behind the rate hikes is an attempt by the Fed to keep the economy from overheating.

With unemployment at 3.8%, the lowest since 2000, and predictions of a drop to 3.6% going forward, rising inflation is a real risk.

“The main takeaway is that the economy is doing very well,” Fed Chairman Jerome Powell said at a news conference. “Most people who want to find jobs are finding them, and unemployment and inflation are low.”

Let’s look at some of the ways this rate hike can impact you directly.

Higher borrowing costs

The Fed lifted the federal funds rate, which helps determine rates for mortgages, credit cards and other borrowing, to a range of 1.75% to 2%.

A higher rate makes it more expensive for banks to borrow money, which can translate into higher borrowing rates for consumers. The cost of higher rates for consumers can translate into less disposable income. It also means increased costs for your lines of credit, credit cards, and any variable rate debt you may have. Paying higher interest rates cuts right to the bottom line.

The Fed’s decision Wednesday was driven by “indications that inflation is right around the corner,” said Jason Reed, an economist and finance professor at the University of Notre Dame’s business school.

The long economic recovery has seen mysteriously low levels of inflation. But it has finally passed 2%, the level the Fed considers healthy.

It’s important to note that the Fed’s preferred measure of inflation, which strips out food and energy prices, climbed to 2.2% in May. This was the biggest registered annual jump in six years.

An ever-improving economy

The Feds recently offered an improved forecast for unemployment this year, lowering their forecast to 3.6%. They forecast an even lower unemployment rate of 3.5% for 2019 and 2020.

For seven and a half years, employers have added jobs every month, a record. And for the first time in at least 20 years, there are more job openings in the United States than there are people looking for work. The biggest puzzle in all this is the continued stagnation of wages.

Low unemployment seems like a good thing at first glance. But as small business owners this can hamper recruitment efforts. In order to attract quality candidates you may have to offer higher wages. The other risk is a complete lack of qualified candidates all together. Lack of qualified candidates can lessen your ability to grow and/or service your existing customer base.

Don’t get me wrong; the sky isn’t falling in on us. A strong economy is generally good news for all of us. As small business owners, we just need to be aware of the risks and fluctuations in the economy so we can manage our ship accordingly.

I encourage you to tune into what’s going on and adjust your financial forecasts accordingly. Fed Chair Powell announced that he plans to hold press conferences eight times a year, up from the current four.

Ensure that you are investing in your employee engagement efforts, building strong leaders, effective communicators, and redo your SWOT analysis to adjust for any potential threats to your industry based on rising interest rates and a tight labor force. If your strategic plans are more than a year old, it’s time to dust it off and examine your action plans.

 

Say It Out Loud

“Doubt kills more dreams than failure ever will” – Suzy Kassem

A couple of days ago I wrote about living a life of fear disguised as practicality. I realized that I had been allowing fear to keep me from doing what I really wanted to do in life.

There is a school of thought that says to keep your dreams/plans to yourself and just let you results speak for themselves. This theory lends itself to the fact that the “dream stealers” will try and talk you out of what you want or that the naysayers will disparage you to the point of giving up all together. I have allowed this theory to keep me stuck. I kept my goals to myself out of fear. It also allowed me to “save face” if I didn’t achieve them.

I now prefer to subscribe to the theory that sharing my goals by stating them out loud allows those who support me to come flooding into my life. Proclaiming that which I desire brings it into my reality. I believe that words have power. I also believe that what you speak about you become. This doesn’t mean that I don’t have fear or doubt from time to time. To the contrary, I believe that pushing past the fear is critical to achieving my stated goals. I have talked myself out of doing what I want more times than I care to admit. I’ve learned that the achievement of the goal isn’t the only prize. The bigger prize is who I become along the way.

I want to return to this girl. This was me 5 years ago, focused on my health and wellness. Missing a workout was out of the question. I have allowed myself to slip into a thick soup of excuses anchored in fear. It’s time to cast off the chains that bind and claim my victory.

I will be in the best shape of my life for my 46th birthday on July 30, 2018.

What has fear been keeping you from achieving?