How I found $146k cash in my business I didn’t know I had!

- September 22, 2020 4 MIN READ

No business on the planet has escaped the impact of COVID-19. The resulting pressure on businesses and business owners has been immense. Cash is King and Cashflow is the blood flow of business. Like many businesses owners, I needed to look at our business differently to secure the present and safeguard our future writes business strategist Paul Roach.

This is how I gave my business cashflow a full C-A-R-D-I-O workout.

cost of goods sold

C- Cost of Goods Sold (COGS)

I looked at our COGS as a percentage, then it dawned on me that we bank dollars. We negotiated with our preferred suppliers and locked in a modest $650 per month ($7.5K per annum) in cost savings.

A- Assets

I learned that some of the biggest Cashflow hiding spots are Debtors and Stock on Hand. I attacked both with vengeance. Firstly, moving our slow-paying Debtors by securing their commitment to pay the 90+ days on a six-month payment plan whilst keeping their current account up to date. This reduced our overall Debtors by $22K.

We tightened our credit policies and enforced stop credit at the times indicated. To do this we trained our Accounts Receivable person to have the ferocity of a tiger yet the sweetness of a candy store and work with our customers to get their outstanding debt owed to us paid. We further reduced Debtors by $17K.

We learned and followed a simple ABC formula and classified our stock accordingly. We negotiated with our suppliers to return our overstocked C class items. We received a credit for $21K that we used to reduce the next month’s payment.

R- Revenue

We looked at our customer base to find additional products and services we could sell to existing customers. We then focused our sales on this and our Gross Profit accumulated to $20K across a full year. In the process, we reviewed a few discounts we were giving and managed to pull them back a bit to benefit our bank account $8K for the year.

We identified one of our major rework items that accounted for around 150 hours of non-chargeable rework per annum. After training our team we were able to reduce this by around one third, or down by 100 hours per annum. This time went into reducing our backlog of chargeable work resulting in a $15K boost to revenue.

D- Debt

Like many businesses, we had fallen into the credit card trap of having $35K across multiple cards. We used the increased Cashflow from above to pay each credit card off and swap it to a debit card. We reduced our overall debt by the $35K and saved around $6.5K in interest, fees and charges per year, every year moving forward.

We needed motor vehicles to run our business however a luxury vehicle added additional cost to the business that was not necessary. One of our luxury vehicles finished its five-year lease during the year and we replaced it with a much more affordable model at around half the cost. This was a $14K saving per annum.

Our business had never had cash reserves, now was the time to change that. Looking forward was the only place to focus and set a plan in place to slowly build cash reserves of four months of overhead costs. It would take us a while but knowing we could pay our bills for four months without any revenue helped us sleep soundly and focus on achieving this sooner rather than later.

I- Investment

We felt it was now time to place solid boundaries around business funds and personal funds. We agreed what salary we would pay ourselves and then left all the business funds in the business.

business overheads

O- Overheads

We took a view of assessing all overheads to see what could be obliterated, automated, deskilled, outsourced, or delegated in that order. Negotiating with our Landlord reduced rents by $7K per annum. Renegotiating phone services enabled us to lock in $8K per annum in savings.

We found the opportunity to obliterate some small functions each day which created the ability to delegate some workload downwards. We automated some additional areas in the business enabling growth without additional overhead. By doing this we were able as business owners, to find time to focus our attention on repairing cashflow. We learned that a good cashflow CARDIO workout is part of our role as Business Owners, not something that gets done if we find time.

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