Stabilise Cash Flow

Stabilise Cash Flow

“When bills are due, I often run low on money”

Imagine a small plane flying over the Pacific Ocean. Halfway across the captain announces, “I’ve got bad news and I’ve got good news.” The bad news is that the gauges aren’t working. We are hopelessly lost, I have no idea how fast we are flying or in what direction, and I don’t know how much fuel we have left. The good news is that we are making great time!”

Does that sound at all familiar?

That’s how most business owners run their numbers. They’re flying blind with no dashboard to let them gauge where they are, where they are going, or if they are heading in the the right direction. But somehow they always remain optimistic!

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Top 10 numbers business owners need to know

13
Ben Walker | CA, CEO & Founder Inspire™

“The key to not running out of gas, halfway along your entrepreneurial journey, is to know your numbers.”

1
Your Magic Number ($)

You Magic Number is your monthly revenue target ($) that covers everything. You know if you hit this number, everything in the month is covered. Your Magic Number

($) = Expenses to run your business + Provision for tax + Pay yourself a wage + Pay down some debt + Give yourself a profit.

Know your magic number every month and know everyday where you are in relation to this number. Then magic will happen for you.

2
Your Team's Magic Number

Once you know the magic number for your business, it’s important that each of your team and owners know their magic number. That is, ‘what KPI or target do I need to hit this month, that when combined together with every other member in the team, the business can’t help but reach its magic number.

This measure will depend on the role your team member plays but here are some ideas. Sales Team – Revenue. Marketing Team – Leads. Customer Service Team – Customer Satisfaction / 10. Fulfillment Team – Days to complete project.

3
Monthly Recurring Revenue ($)

Every business has two water lines.

1 – How much consistently comes in each month (Monthly Recurring Revenue), and
2 – how much consistently goes out each month (Monthly Recurring Expenses).

The difference between these numbers is directly related to how much or little a business owner will stress about cashflow and making ends meet. For example a business who has $5,000 per month that comes in (from retainers, subscriptions or membership services) but has $10,000 per month that goes out in (e.g. lease, wages and subscriptions), must come up with an additional $5,000 per month just to make ends meet. If you are in business, and you want to stabilise cashflow, you need to make your ‘in vs out water lines’ match.

4
Monthly Recurring Expenses ($)

See Monthly Recurring Revenue above.

5
Your $100 Bill

Every business owner (and even their team) needs to know ‘their business $100 bill’. That is, for every $100 of revenue that comes in, how much goes to Profit vs Owners Pay vs Tax vs Operational Expenses. While a Magic Number speaks to how much revenue comes in. the $100 bill speaks to where that money goes.

It can be an eye opening experience to realise that a ‘$100 Bill’ for a typical business looks something like this –
$0.30 Profit, $11 Owners Pay, $15 Tax and $73.70 Operational Expenses.

Once you know the breakup of your $100 Bill you can put downward pressure on your expenses to maximise your profits.

6
Cashflow Days

A Cash Flow Day equals, how many days it takes to [SELL IT] + [MAKE IT] + [DELIVER IT] + [BILL IT]. Imagine a business that has counted their days – 30 + 18 + 10 + 61 = 119 Cash Flow Days. That’s how many days they are out of pocket and in stress mode, struggling to make ends meet. So what is a cashflow day really costing this business? Well a Cashflow Day = Annual Revenue / 365 days. So for a million dollar business a single cashflow day is about $2,700 ($1,000,000 / 365 days) So a 119 day Cashflow cycle means you’re out of pocket $321,300 ($2,700 x 119). Finding smart ways to reduce your cash flow days by just 15 days, and that’s an extra $40,500 in your account.

And with that you can, sleep at night, pay down your debts, make a deposit to your profit war chest and invest in further business growth. But it all starts with knowing your days. Remember: What you measure you treasure.

7
Current Business Valuation

Most business owners either don’t know how much their business is worth or or they own a worthless business.  The formula for a simple business valuation is
Profit x Business Sale Multiple = Business Value.

So an accounting firm that make $100,000 Profit could sell his business at a multiple of 3.5 times profit, making his business worth $350,000. Whether you plan on selling your business or not, knowing your current valuation and the factors that affect your value, can help you to increase the potential sale value – increasing the value of potentially your largest asset.

8
Current Net Wealth

Most business owners either don’t know how much their business is worth or or they own a worthless business.  The formula for a simple business valuation is
Profit x Business Sale Multiple = Business Value.

So an accounting firm that make $100,000 Profit could sell his business at a multiple of 3.5 times profit, making his business worth $350,000. Whether you plan on selling your business or not, knowing your current valuation and the factors that affect your value, can help you to increase the potential sale value – increasing the value of potentially your largest asset.

9
Days until next family holiday

Many business owners play for the finish line and as a result put off important priorities until a future date. Unfortunately that future date never comes and the owners are left burnt out and unrewarded. The business journey is tough at times, long days, late nights, weekends. You’re almost always ‘ON’. Knowing there is some downtime on the horizon (we recommend 8 – 12 weeks holiday per year) can do wonders for your subconscious and allows you to focus intensely on the task at hand. Your friends and family will know when they can enjoy some good quality time out with you and they won’t worry so much if you have to work late or work through a weekend here and there.

10
Current level of happiness (scale 1 - 10)

Your life is not for work. Work is to provide you more life. So how do you feel? On a scale of 1 – 10, how happy are you in your business and personal life? 10 being ecstatic, 1 being exhausted. Being conscious of your happiness levels and what activities affect your happiness is critical to avoiding burnout and breakdown – in business and life. Perhaps it’s time to leave the office a touch early and hit the gym or grab the kids from school. Business is hard and the stresses go up and down, but aiming to consciously be an 8 to 10 on the happiness scale will make you a better business person and family head.

How to make BAS work for you.

Most business owners hate BAS time because it signals more money to the tax man. While there is no changing this, we can make sure you :

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