Most will understand the importance of cashflow in business. But often without realising, businesses can build a cash gap. This is the time between when a business pays cash out and makes purchases, to the date the cash is received in from customers and debtors.
It’s important for small businesses to recognise the potential impact this could have on business. For this we need to understand the true important of cash flow. Business owners and leaders don’t want to arrive in a situation where they need to cover the difference, through factoring or bank financing.
To understand the power of cash flow and its impact on business growth, Ray Moore explains ‘The Growth Triangle.’
At its most basic, the model presents the idea that business growth produces more profits for the business, which gives a healthy cash flow which can be reinvested in growth.
But is this really the case?
The second part of the model shows other areas that influence the Growth Triangle. In a more realistic light, profits in the business can become caught up in the balance sheet before creating cash flow. This could be because we’ve given extended credit or we haven’t chased up our debtors for payment.
So what started as profit doesn’t come out of the balance sheet as cash, which restricts how much we can put back into growth.
We may then use the cash flow we’ve got to purchase new machinery or vehicles, so there is even less cash to push into business growth. However, the amount we do invest into business growth then starts to produce more costs in the form of overheads, therefore it doesn’t produce the same amount of profit as before.
This is why business owners often say they made more profit when they were a smaller size and why many business owners settle on their business being a smaller size.
Preparing for business growth
As important step in preparing for business growth is to ‘Set out the Stall' and look at each of the filters in the Growth Triangle so that growth doesn’t drag in more cash, without making a profit. Ensure that your return on investment calculations are correct and identify the assets that create growth and profitability, whether is people of machinery.
By doing this, you can efficiently build up a cash reserve and be prepared for the extra amount of cash and investment you’ll need for the business growth. You’ll also have the awareness of which investments are the most important to your business model in order to produce the best return of your investment.
One of the key drivers of business is ‘Delivery.’ This refers to the consistency and quality of your products and/or services and is usually a focus for business owners. However, for most business owners the priority is driving sales and finding new clients. This can lead to your current, most valuable clients being forgotten.
You’ll be aware that there are some customers that are more valuable to your business (your ‘ideal’ clients). But are these clients aware of all the products and services your business offers? Maybe you’ve told them, or mentioned it in the past. But do they have a full understanding and awareness of everything your business offers?
It’s a well-know fact that getting new clients to purchase from your business is much harder than selling to your existing clients. So what are you doing to identify new opportunities with your existing clients? Getting a true understanding of your customers will help you to sell more. The more you know about their needs and the products or services they use, the easier it is to see opportunities for your business.
Take some time to get to know your clients, consider using a spreadsheet to register:
- What your clients currently purchase from you
- What they use, but purchase elsewhere
Use this information to spot the opportunities and build offers to create awareness.
You might notice a spike in sales as your customers become aware of the wider range of products and services your business offers. And, even if some decide not to purchase with you now, your business will become a suitable alternative if something changes with their current supplier.
This process of getting to know your clients is important for more than the reason of cross/up selling. Having a deeper and clearer understanding of your clients, their needs and current suppliers, you’ll get a better understanding of your target market. Use the information you’ve learnt to build customer profiles and segments that can then be used in your marketing efforts.
The key benefits of getting a true understanding of your clients, and for your clients to have a true understanding of your business are to:
- Build better relationships with key decision makers
- Improve awareness of current clients needs
- Meet client needs more effectively
- Profile/segment your target audience
- Increase effectiveness of marketing
For more on this topic, tune in to Episode 122 of the Fluid Business Podcast:
It’s that time of year again and we’re starting to feel festive!
For the first 12 days of December, we’ll be giving away a whole range of business-growth tools to help you and your business become the best in 2018. The grand total of all the prizes we’re giving away is £4,000!
Each day we’ll tell you how to enter and you’ll be in the draw to win a whole range of prizes, absolutely free! To receive daily updates, simply follow us on Twitter, LinkedIn or Facebook, or alternatively you can register for email updates below.
On the first day of Christmas (December 1), we’ll be giving away 25 free copies of Ray Moore’s first book: Can Your Business Step Up To The Growth Challenge? (RRP £11.99). Registration opens at 9 am and will be open to all small business owners based in the UK.
Business owners often believe that by investing more time and hard work, their business will continue to grow. But unfortunately (or fortunately!) that’s not the reality of business growth.
Sheer hard work and investing all the hours of the day into the business will help you to grow your business in the early days. But, as the saying goes; what got you here won’t get you there!
The reality of business growth is periods of growth, followed by a plateau, which is a cycle that repeats over time – this is the Levels Framework for growth.
Start-up businesses can often grow through a couple of plateaus quickly, but can end up falling into the trap of becoming stuck on a plateau for a long period of time and the business owner tends to accept that the business has grown as much as it can.
There are four drivers that are active in every business, these are:
During periods of growth, one or more of these drivers will go out of balance. For example, you might be so busy with orders and running the business that you don’t have enough time to fully train your team. That results in the delivery of your service slipping and customers become unhappy. So you end up loosing customers and money and the drivers naturally rebalance on the plateau.
When the business reaches a plateau, each of the four drivers are balanced. When a business grows and the drivers go out of balance, it’s common for the business owner to feel out of control and often the business forced down to the level (or plateau) below.
Growing a business
Sometimes a business will grow and become larger in size, but they make less money than when they were smaller. It’s a common symptom of businesses that have failed to set the business up for growth. The business’ infrastructure and team isn’t ready to undertake a period of intense growth. ‘Setting out the stall' is covered in much further detail here.
Achieving a balanced business is so important for success and work for everyone involved. The business owner will have more time, the right people will be doing the right things, there will be more cash and customers will be better serviced.
If you think you’re up for the challenge, join our 10-day business growth programme! Ray Moore goes through how to balance each of the drivers in further detail. It’s available for FREE at www.fluidbusinessacademy.com.
You may have recently seen our Accounts: Debunked webinar, but what does ‘debunked’ actually mean?
Let’s start with a definition.
Debunked means to cut through the ‘rubbish’ and get to the core of the subject. It's about removing the confusing jargon and acronyms to help you build a true understanding of the foundations of the subject.
As a business owner, you may find that you are hugely successful at what you do. But, you don’t really understand why; what do you do differently to everyone else?
This often occurs when we don’t truly understand a particular experience. When trying to explain what we do to other people, we can’t see why they don’t understand. To us it’s just ‘common sense’ and it can be hard realise that the real problem lies in our own blind areas.
That’s why we’re running a series of webinars and interviews ‘debunking’ different areas of small business. We started with ‘Accounts.’ Ray Moore explained each key areas of accounts that business owners ‘need’ to know and understand to get clear and deeper understanding.
Now, we’re excited to announce that we’re teaming up with Paula Fisher, Founder of Practical HR, to produce a two-part webinar interview series – Management: Debunked. Paula has more than 30 years of HR expertise and, alongside Ray Moore, will be covering:
- Employment law
- Hiring and firing
- Home-grown managers
- Developing the leaders of the future
Register now to receive the webinars.
Ray Moore is on the Fluid Business Podcast with Andy Sleet discussing the DEBUNKED series in more detail. Listen below, or head over to Apple Podcasts or Stitcher.
As a business owner, you may currently be experiencing success or have enjoyed much success in the past. But what happens when the results start dipping, KPIs aren’t being met and your successful formula no longer seems to be working?
The short answer is, past results do not guarantee future success.
In business, the environment is constantly changing. People get better and technology progresses all the time. If we don’t progress ourselves, effectively we are going backwards. To guarantee success we need to develop at least at the same rate as our competitors.
Ask yourself these questions:
- Do you have 30 – 40 year experience in business? Or, do you have 1 years experience, which you have photocopied 30- 40 times?
- Are you learning, growing and modifying what you are doing to make sure you experience continued success?
Many hit on a successful formula and continue to repeat it, without ever checking that it is the best way to do the task at hand. As conditions change, you will be unable to adapt to the new circumstances and performance will suffer.
Similarly, you may ‘hit the glass ceiling’ and can’t understand why your once successful formula is no longer working. As Ray Moore discusses in his best-selling book ‘Can Your Business Step Up to the Growth Challenge?’ it’s important to stop, reflect and review what you have done before, then modify your actions going forward.
Take time to truly understand what you do. By harnessing this understanding you can leverage your experience. Consistently replicate excellent performance no matter what the state of the market or trading conditions.
Understand that what got you here won’t necessarily get you to where you want to go. Push your comfort zone, question your beliefs and develop yourself both personally and professionally.
And lastly, surround yourself with the best people you can – both internally in the business and externally. Do not fear others expertise, but welcome the chance to grow yourself and your business.
Marshall Goldsmith has written on this subject in his book ‘What Got You Here Won’t Get You There’.
Listen to Andy Sleet and Hugo Heij discuss this in more detail below:
BHAG is an acronym for Big Hairy Audacious Goal; a concept originally formulated by author, Jim Collins. It’s a long-term goal, usually between 10 and 30 years. Often when it’s set, the goal seems unachievable and the business owner doesn’t have a clear plan on how they’re going to achieve the goal. The BHAG should be something big, exciting and ambitious!
The purpose of the BHAG is to be a guiding principle; something that gives drive and focus to the team and provide a basis to make informed and effective business decisions. Deciding on your goal is important; it is going to be something that you dedicate a significant amount of time, money and effort to.
Here are some things to consider when setting your BHAG:
You’re going to need help
It is unlikely that you’re going to be able to achieve your Big, Hairy goal alone, so you’re going to need support from your team. If you’ve ever read Ben Hunt-Davis’s book ‘Will it make the boat go faster?’ you’ll know that Ben and his rowing team were only able to achieve their BHAG because they worked collectively to make it happen.
The key to making your BHAG happen is surrounding yourself with a likeminded team, that are passionate about achieving the same goal.
Don’t keep it a secret
The only way to get support from your team is to communicate your BHAG! You won’t be able to achieve it alone, so your team need to understand and ‘buy-in’ to your vision.
Also, saying your BHAG out loud makes it slightly more real! You’ve made a public declaration of your commitment to achieving it, which means you’ve got to start working towards making it a reality.
When Ben Hunt-Davis and his team set the BHAG to win Gold in the Rowing at the 2000 Olympics, they used their BHAG to justify and shape the decisions they made as a team. If it doesn’t make the boat go faster, then why are we going to do it? You can adopt this principle in your organisation; if it doesn’t bring you closer to achieving your goal, why are you doing it?
If you want to discuss how to set or achieve your BHAG, book in a free consultation and speak to one of our coaches.
Listen to Episode 108 of the Fluid Business Podcast for more on this topic:
Very few business owners build a business that is capable of being sold and even fewer achieve the price they expected in the marketplace. This often leaves business owners feeling confused; how, after providing the owner with many years of success, can the business be worth so little?
Here are the three main reasons a business is not saleable:
– The business owner is the most valuable asset. If the business owner left, the profitability and value of the business would be significantly impacted.
– Family members and friends are employed or involved in the business and it may prove to be difficult for the purchaser to change the way the business operates.
– The valuation is unrealistic as there is a lack of profitability and reliable financial information.
Selling the business is usually the last thing on the owner’s mind; but building a saleable business isn’t just about the actual sale. Readying a business for sale means that it can operate without relying on the business owner, creating a business that has value and provides the business owner with the freedom to continue in the business or sell.
We often hear business owners say “my business is my pension,” but they aren’t building a business that has value and could fund a retirement! This is why the process needs to start with identifying the ‘end in mind’ – the dream lifestyle that the business needs to help the owner achieve.
Here are some things to take into consideration if you want to start readying your business for sale:
- Start with your end in mind. What exactly does your business need to help you achieve? Ensure you start out with a clear idea of why you are building your business in the first place.
- Remember that this isn’t a quick process. Allow up to five years to get the business ready for sale.
- Communicate with your team. Make sure that they’re aware that this process will provide them with long-term security in their roles.
- Ensure that business processes are streamlined and that your team is comfortable and confident in making decisions in the business.
Ray Moore and Andy Sleet discuss in more detail on the Fluid Business Podcast:
At Fluid Business Coaching we love a good book, so here are our top five must-read books for owners of small to medium-sized businesses.
Authored by Ray Moore, founding coach at Fluid Business Coaching, this book gives a completely new perspective on business ownership. Ray explains his framework for business growth and how to overcome the common challenges faced by business owners. Commonly described as the “manual for business growth,” this is a must-read for SME owners.
- Black Box Thinking, By Matthew Syed
In this book, Syed covers the recipe for success and what gives some people the competitive edge. Black Box Thinking uses real-life examples to highlight how these learnings are transferable into the world of business, and why making mistakes is a crucial part of personal and business growth.
- 24 Assets, By Daniel Priestly
Why do some businesses have huge success, while others don’t? In 24 Assets, Daniel Priestly sets out the structure needed to build a valuable business capable of scaling and making an impact.
- The 7 habits of highly effective people, By Stephen Covey
This book is often referred to as one of the most influential books ever written, with millions of copies sold worldwide. Among the seven habits is ‘sharpening the saw’ the concept of consistently renewing and developing yourself. Which is a habit that all business owners should adopt if they want to stay relevant in the ever-changing world of business.
- Who moved my cheese? By Dr Spencer Johnson
In this book, Dr Spencer Johnson highlights the need to approach change an issue that often makes business owners feel uncomfortable. As an SME owner it’s easy to get caught up in the day-to-day running of the business, but this book demonstrates that by challenging the status quo, huge improvements can be made.
Did your favourite business book make our list? Let us know your recommendations!