Who are the right clients for your business?

On any social media business page or group, there are always a million questions & comments about not having enough time to get the work done and yet we want to grow our businesses. How is that even supposed to work? Not every business wants to hire employees AND in many industries, we are unable to find the right people…even if we wanted to!

One thing to do is have a look at your current clients…. there is potential there to move some on. These are the clients that never pay on time, are always demanding and are not a joy to work with.

You may think it’s crazy to consider moving a client on, however think about the brain space and extra capacity you will have to attract a new client? Let alone the reduced stress!

 Before you consider ditching anyone, let’s think about who are the right clients for you?

Take some time to consider the following;

1.       What clients give you the most revenue? Tip* Run the Income and Expense report in Xero and filter by income to see where your revenue comes from.

2.       What clients pay you on time, all the time and who is always late? Who are you always chasing?

3.       What services do you enjoy doing the most and which clients use those services?

4.       Which services are the most profitable and bang for your buck with time? Which clients use those services?

5.       When clients call, which ones do you always smile when you answer the phone and which ones do you have to force yourself to answer?

6.       Which clients align with your own values?

You may even want to go as far as grading your clients. There will be some that you know deep down need to go. You will now also have a clear list of the clients you love.

Have a think about that group…. Where do they hang out? What do they have in common? Invite them out for a ‘virtual’ coffee and do a bit of market research so you know where to find more of them!

Cash Flow Coaching: How to Keep the Cash Flow Flowing

After our introduction to Cash Flow, we wanted to share a little more with you on this important subject. Starting with 7 ways you can keep the cash flowing in your business.

Many businesses struggle with maintaining strong cashflow, and not just in those crucial first months but also years after starting. Cash can become tight in a business for many reasons; such as following a global pandemic (or any type of crisis), when trying to grow, or just through poor processes and management. A stifled cashflow is one of the biggest reason businesses fail. 

Benefits of Cashflow Management

Cashflow planning is best practice in any business and critical to survival and growth.  Setting cashflow targets and regularly monitoring your actual cashflow against your forecast will…..

·        Give you an understanding of cash and liquidity for better business decision making

·        Help you understand the key cashflow drivers and the Cash Conversion Cycle in your business

·        Enable you to predict and plan for large cash outflows and respond to changes in your business

·        Provide peace of mind that your business’s cashflow needs are known and properly funded

·        Improve business processes that maximise cashflow, profit and business value

·        Drive your business to achieve your goals in a controlled and managed way

7 Ways to keep your cashflow flowing….

So now you know how important cashflow is, and the benefits of managing it properly, how can you improve it?

1.      Understand your business’s Cashflow

Profitable businesses can experience extreme cashflow problems, just as unprofitable businesses can survive if they’re well-funded.  Understanding the difference between profit and cash and your business’s Cash Conversion Cycle is essential for your business to be viable in the long-term.

To be able to forecast and manage cashflow you first have to understand what the key drivers of your cashflow are.

2.      Review and reforecast your business’s Cashflow & KPIs

Once you have an understanding of Cashflow, you need to forecast and evaluate it. Without a forecast and regularly reviewing how you are performing against that forecast you may struggle to manage your cashflow effectively.

3.      Get paid as quickly as possible/Reduce your Days Receivables/Cash Conversion Cycle

Getting paid quickly is the easiest way to improve your business cashflow. And there are some easy ways to reduce your days receivables. Such as by sending your invoices immediately or sending interim bills - the sooner you send an invoice the sooner you will get paid. Having clear payment terms, and making it as easy as possible for customers to pay by giving them multiple payment method options. And don’t forget to set up your Xero invoice reminders, so Xero automatically follows up any invoices that become overdue – just be sure to reconcile your bank regularly so that your customers don’t receive reminders after they have made payment.

4.      Maximise your Payables

Pay any bills on time to avoid late payment penalties. And don’t be afraid to negotiate with your suppliers – request better payment terms (30 instead of 7 day), or discounts for prompt payment.

5.      Maximise your income

Look at the pricing of your products and services, think about expanding your market by adding complimentary products and services or widening your customer base – consider going online, or extending the geographic area you cover. Invigorate your sales collateral: update your shop or website, to get your customers attention and attract some new ones.

6.     Reduce your expenses

Whilst cashflow is different to income, expenses do have a big effect on the flow of cash in your business. So it is always a good idea to cut any unnecessary expenses and look at how you might be able to save money. Consider things like leasing rather than buying assets, online and virtual meetings to reduce travel costs, modernise your marketing efforts – social media marketing is often cheaper and can be more effective than traditional print marketing.

7.      Think ahead/Look to the future

Think long term, have an annual business plan, keep an eye on what’s happening in the world and the general economic conditions that could affect your customers or suppliers (and therefore your business) tomorrow, next week, next month, next year.

Whether your business is struggling for cash or not, every business owner needs an understanding of cashflow and liquidity for better decision making.  All businesses should have a Cashflow Forecast in place at the beginning of the new financial year - having said that, we can prepare one at any time.

If cashflow is something you want to improve your own understanding of, or recognise as a challenge in your business, get in touch. Here at Pulse helping our clients look ahead with confidence is core to our purpose as your accountants. Which is why we offer Cashflow Management Coaching, where we work with you beyond preparing a Cashflow Forecast, by understanding and treating the underlying causes of poor cashflow - starting with your Cash Conversion Cycle.

Inadequate cashflow is a symptom of management problems in a business, NOT the cause.  We will help you fix the underlying issues.

Cashflow Management Coaching includes preparation of a Cashflow Forecast along with a three hour Cashflow Management Coaching session to:

-        Discuss and finalise the Cashflow Forecast

-        Identify your current Cash Conversion Cycle

-        Identify the likely causes of cashflow problems within your business

-        Set 12 month and 90 day cashflow improvement goals and actions

This initial session is followed by four quarterly accountability coaching sessions, ensuring that you put in place essential cashflow management strategies and achieve your cashflow improvement goals.

If you need a helping hand with a cash flow forecast, and improving your business’s cash flow, come and have a chat with me.

Building a Better Business - Getting to Know Your Numbers

When I wrote my 10 Steps to building a better business, I mentioned both continuous learning and monitoring your progress, and a big part of that is understanding the health of your business, which means knowing your numbers.

Let’s be honest though, you started your business to do what you love, not to spend hours looking at numbers. Isn’t that why you have an accountant? To take care of all that for you?

And you’re absolutely right, that’s why we’re here. Reviewing reports, creating forecasts and pulling together business plans or cash flow forecasts is what we love doing best!

But that doesn’t mean you get to forget your finances altogether.

As a business owner, you should set aside time every month to do some essential financial checks - even if you have a bookkeeper or accountant.

So what exactly should you be looking at?

3 Key Financial Reports to Review

The best way to get an overview of your business’s finances each month is to look at these three main financial reports.

• Profit & Loss

• Balance Sheet

• Cash Flow

You can easily pull them directly from Xero - or speak to us about creating them for you.

Great, so now you know which reports to review, what exactly do they tell you?

Profit and Loss Report 

A Profit & Loss (or P&L) can be run for a month or a year and shows you your income and expenses, by account code. So exactly what brought money into your business and how much was spent and where. At the end of the report it also tells you, as the name suggests, if you were profitable in the period you have selected, or if you operated at a loss.

A P&L can help you make decisions around where to grow your business based on your sales, or if you need to cut costs to improve your profitability, where that might be possible.

By selecting a number of comparison periods you can also use the report to identify business trends in both income and expenses. This in invaluable when it comes to planning and forecasting.

Balance Sheet 

The balance sheet is a bit more complicated. It ‘s a snapshot in time of the value of your business based on your Assets and Liabilities.

The main formula behind a balance sheet is: Assets = Liabilities + Shareholders' Equity

In Xero it is shown as Net Assets = Equity.

This means that your business’s assets (which can be cash at the bank, plant and property you use to run your business, etc) are balanced by it’s liabilities (any money your business owes to finance companies, banks, IRD, suppliers, etc) and equity (which is the money initially invested in the business plus any retained earnings)

Your Balance Sheet is a good place to see your financial obligations - including Tax. So at least once a month you should be looking to check what you owe IRD in terms of GST, PAYE (if you have employees) and Income Tax. And you can also see in your Balance Sheet if you have enough cash in the bank to meet these obligations.

Cash Flow Statement 

Cash flow is very different to profit. Many people, even business owners, assume a profitable business must have good cashflow but this is simply not the case. A business can realise a profit and still struggle with cashflow – if for example the business relies on costly assets (such as machinery and vehicles) or if it suffers from high aged receivables.

Your cash flow statement tracks how much actual cash the business earned (it doesn’t include projected income such as unpaid invoices etc.) This is essential to understand how much money you actually have in the bank at a given time.  

Set aside time every month to review these key financial reports. That way you see how healthy your business is, make smart business decisions day to day and stay on track to smash those all important business goals you set.

If you need any help understanding these reports come and see me!