1) Lowering The Barriers To Doing Business - author: Paul Dunn

2) Lessons in Leadership: Tom Peters - author: Ryan Travis (RAS)

3) What Are The 4 Ways To Grow My Business?

4) Customer Satisfaction - A Matter of Survival!

5) Survival Of The Fittest

6) What You Can Measure You Can Manage

7) Cash Is King!

We all learn a lot from other people’s experiences and from stories. Let me combine the two. I’m in Dublin about to return to the UK thence to Australia. I’m at the International Airport with about 90 minutes to spare. Looking around I notice a hairdresser. I need a haircut. But before I go in, I check my pockets to see if I have any Irish currency (the punt). I don’t. Not to put to fine a point on it, I am "puntless".

So, I go and ask, "Do you take Credit Cards?" Well, I may as well have been from Mars. The woman looked at me with disdain. "Certainly not," she replied. So, I now have an interesting decision. Do I stay and present a 30 minute mini-training program on why you should not put up barriers – why you cannot make it too easy for people to buy things. Or do I leave. Option ‘b’ won.

Why on earth would she not accept credit cards. Because like so many companies, she was putting up barriers to doing business. Many companies make it hard for people to do business with them. Yes, they’re well intentioned, perhaps. But those intentions are so mis-directed. Take the hairdresser as an example. She probably didn’t take credit cards because someone (her accountant?) had told her that you have to give 4 per cent or whatever the number is to the Credit Card company. How silly is that.

Here we are worrying about the 4 per cent and forgetting completely about the 96. It simply doesn’t seem like a good business bet.

Barriers go up all over the place. Take the phone as yet another example. When someone calls, do they have to "go through the hoops" to get through to you. Is there the quite unnecessary interrogation? Or are the barriers down as they should be. By making it inviting, easy, informative, non-threatening, educational, and fun to do business with you, you will lift your firm above your competition. By getting your clients to apply those same philosophies, their business will lift as well.

Remember these important points:

• You cannot service too much.

• You cannot educate enough.

• You cannot inform too much.

• You cannot offer too much follow-up and follow-through.

• You cannot make ordering too easy.

• You cannot make calling or coming into your business too desirable.

But let’s apply an important warning. You’ve heard, of course, that the customer is always right. We don’t think that’s absolutely true.

We believe in this:

The RIGHT customer is always right

So in some way, you may want to segment customers so that they experience what we call "appropriate levels" of service.

The following is the second in a series of articles profiling the speakers at the recent Lessons in Leadership Conference. These speakers represent some of the most successful, innovative leaders and philosophers in the business world today. This installment features Tom Peters.

Many of us are familiar with the work of Tom Peters. After all, among his many credentials, he is listed as the best selling business author of all time. Tom is a regular on the seminar circuit and has written a number of enormously successful and thought provoking books such as In Search of Excellence. His articles can also be regularly seen in a number of major newspapers and popular academic journals as well.

Tom's goal is simple. In his own words, he, "is here to give people the courage to do something special." He stresses the need for individuals "to explore their own ability to innovate, and for organizations to recognize that ability in all of their workers."

At the recent Lessons in Leadership Conference, Tom carried an even bigger message. We, Tom predicted, are on the verge of a revolution, a technology revolution that will rival those of the past 500 years. As Tom puts it, "This is the revolution of the internet, information systems, information technology, knowledge capital management, globalization, global deregulation, etc."

In this day and age, 90 percent of us work in White Collar jobs and yet, their has never been a revolution of productivity in the White Collar sector as their has been in the Blue Collar industries. Or, as Tom advocates, the White-Collar revolution has happened… "Until now". Technology will change that and all of us along with it.

What will be the effect of this revolution? Quite simply, "90 percent of White Collar jobs will disappear or be reconfigured beyond recognition within 10 to 15 years."

The response? We must learn to adapt, just as Blue-Collar workers have learned to adapt as technology has changed the industrial landscape.

Tom Peters proposes the following action strategies for "survival in the new world of work"

Tom advocates that we must learn to "Brand" ourselves. The idea is as simple as it sounds. Within your organization, differentiate yourself (Tom uses the catchy phrase, "Distinct or Extinct") Do you currently, he asks, "via the spectacular nature of your work per se - have a 'signature' that's as unmistakable in its own right as BMW's? Or Tiffany's? Or Nordstrom's?"

Once "branded" the new professional needs an organizational model that will support their endeavors. Tom suggests this model exists in what he calls, "The way cool professional service firm".

Tom explains this concept by saying, "in order to deal with the White Collar Upheaval, we don't actually have to invent a wheel. That is ... there is a class of organizations that have always done Work Worth Paying For ... based on "applied white collar brainware."

This organization is the professional service firm. By examining and emulating the model of how it functions, organizations can turn themselves into "cool professional service firms" where cool, "branded" people work on "cool" projects that add value and provide "memorable client service".

Tom gives in his own words, the following attributes of what a "dreary department" would look like after such a transformation.

The Work

• • Does work worth paying for every time (This ain't a game!)
• • Is well-known for something/ Has a Recognizable Signature (Brand!)
• • Has a Core Methodology/ A distinguishing approach to problems
• • Does WOW Projects! (All WOW All the Time!)/ Turns blah projects into WOW!ers (and turns down the ones it can't)
• • Leaves a Legacy/ Does Work That Matters (and passes the test of time)
• • Isn't afraid of the word "sell" / Is proud of its capabilities and wants the world to know about them
• • Sweats the small stuff/ Is obsessive about details
• • Takes risks/ Grabs for the Brass Ring/ And: Understands that the road to success is paved with good failures

The Clients

• • Has a Client List ... to die for! (And d-u-m-p-s Dud Clients ... internal or external)
• • Is in intimate contact with its Clients/ Willingly shares Intellectual Capital with Clients
• • Stretches its Clients/ Embarks on Joint Adventures of Discovery and Growth with its Clients
• • Makes Heroes out of its Clients!

The People

• •Is the "Place to Be"/ a Magnet for Hot Talent!/ Hires C-O-O-L! (and pays accordingly!)
• •Provides stunning growth opportunities for energetic individuals
• •Celebrates the creative power of diversity/ Loves its freaks

The Place

• • Is designed to inspire/incite/facilitate Work That Matters
• • Is exciting/vibrant/rockin'/cool/Kewl as Tom spells it (Feels Kewl, Looks Kewl, Smells Kewl, Sounds Kewl)

And finally, "branded" workers in "cool professional service firms" won't work on mundane tasks, but rather, Tom suggests they will spend their time on "Wow! Projects".

A "Wow! Project" Tom suggests, "Is the quintessential expression of personality and character. It confronts and redefines an important problem in such a way that participants will be remembered for it ten years later. It is dynamic, stimulating, a major bond builder among coworkers and a source of buzz among end users. It moves at record speed, is measured in terms of "Beauty + Grace + Wow! + Revolutionary impact + User raves. Most importantly, it starts with you!"

It is quite an interesting concept to think of the new corporate landscape, according to Tom Peters, where individuals have branded themselves in the same way as McDonalds or Starbucks, and corporate departments are organized as "way cool professional firms" that devote their time to "Wow! Projects". The brief exposure I had to the thoughts and ideas of Tom Peters left me curious and intrigued by the possibilities. If this brief overview of Tom's message has provoked a similar feeling, I highly recommend you explore further.

Tom has several best selling books available, including, In Search of Excellence, Liberation Management, Thriving on Chaos, The Pursuit of WOW and The Circle of Innovation. A calendar of Tom's speaking engagements can be found at his website, www.tompeters.com.

There are only 4 fundamental ways to grow your business:

1) Increase the number of customers (of the type you want)

2) Increase the transaction frequency

3) Increase the transaction value or 'average sale'

4) Increase the effectiveness of each process in your business

If you're at all skeptical about whether there really are just 4 ways (obviously with multitudes of strategies under each) think of a strategy to grow your business - any strategy - and you'll probably find it falls under one of these 4 areas.

Conversely, think about a strategy like 'cutting costs' - realistically that won't grow your business unless you use the money you save to promote your business. It may let you control your business better and return greater profits, but it won't grow your business.

1) Increase the number of customers (of the type you want)

If you're like most business owners your primary focus will be on the first way to grow your business - winning new customers. You've probably often thought 'I need more leads', 'I've got to get more inquiries', 'if I could just get the phone to ring and more people to walk through the door we'd be doing really well' and so you invest heavily in advertising for instance. Often there are other ways to win increased sales that don't cost nearly as much and usually those strategies go untouched.

Focusing on this way to grow your business is often far more expensive and the least leveraged. It costs up to 6 times more to win a new customer than it does to have an existing client do more work with you and that directly effects your profit potential.

Your Results Accountant will work with you to find other leveraged ways of winning new customers and show you how to improve the advertising you are doing. And they'll make sure you're winning the right type of customer - someone who's 'qualified' to buy from you!

They'll also work with you on the 3 remaining ways to grow your business so you're maximizing all of your opportunities rather than focusing on just one way to grow.

2) Increase the transaction frequency

Increasing the 'transaction frequency' - or the number of times someone deals with you is an important step to increasing your profitability.

In fact, some scholars say this second way is the most important of all. It's a fancy definition of loyalty, or customer retention, which in and of itself is closely related to value.

An author named Frederick Reichheld has done extensive work on the subject of customer retention. It was most recently captured in his brilliant book, 'The Loyalty Effect'. Reichheld discovered that a 5% increase in retention (of the right customers) can produce as much as a 125% increase in profit.

He didn't say a $5,000 or $50,000 investment in marketing can produce a change of 125% in profits. He said JUST a 5% change in RETENTION of the right customers.

Staggering isn't it? And, of course, you effect loyalty by delivering value and by nurturing your customers. Your Results Accountant knows how to develop your customer targeting and retention strategies.

In one moment, you'll be able to use the 'Profit Improvement Potential' calculator to find out the effect on your business.

3) To increase the transaction value, or 'average sale'

This is a 'Blinding Flash of the Obvious' or 'BFO'! However few businesses realize its importance (in fact, they do the exact opposite).

There are two fundamental ways to increase the average sale. First, by 'cross selling' or 'up-selling', both mean you encourage the customer to buy more. Your Results Accountant can teach you how do to this in a systematic fashion so it happens every time and adds value to the customer.

The second way to increase the average sale is to raise your prices. When you suggest "raise your prices" to the average business person they think you're crazy. But when you sit with a Results Accountant they'll guide you through what's called "The Margin Chart". It shows the direct relationship between 4 key variables in your business - price, volume, fixed costs and variable costs and you'll be amazed at the possibilities. To grasp the possible effects on your business of increasing the average sale, you'll be given an opportunity to use the 'Profit Improvement Potential' calculator soon!

4) Increase the effectiveness of each process in your business

The fourth way to grow your business is more of an all-encompassing strategy than the other 3 ways. You see, increasing the effectiveness of the way you do business is central to everything but so few people work at it.

When you think about it, a business is nothing more than a group of people carrying out a variety of processes - the quality of the processes defines and determines the quality of the outcomes. Makes sense doesn't it?

So going back to the example earlier of a business owner needing 'more leads' we might discover that in fact, the business doesn't need any more leads rather to convert more of the ones they're already receiving! That's a sales 'process' that needs improving.

Truth is that most people don't see their businesses as a series of processes. But that's exactly what they are. To illustrate the point, consider this true story of one Results Accountant working with a client:

The accountant's client is a Turf (or sod) Farm. The farm is located out of town so most 85 % of business comes from people calling checking prices. By measuring certain results the accountant found that when people visited the farm, 85% of them bought. While only 22% of people who called on the phone actually came out to the farm.

So the key activity (or process) to change was, of course, the way in which the phone was being handled. How would a non-Results Accountant do that? With enormous difficulty we suspect.

But the Results Accountant simply "wheeled in" one of the special resources they use and ran it for the client as part of their ongoing business development program. The results were instant. The phone conversion rate shot up to 60% (that's right, suddenly nearly 3 times more people visited the Turf Farm). Put even more simply, the resource helped the client multiply this part of their business by nearly 3 times.

And that could be you!

Customer satisfaction has always been important, but there is now a growing school of thought that it can make the difference between a company's survival and its failure.

This is especially given the slowing global economy, apart from a couple of exceptions such as Australia and Ireland.

The reason for the importance of customer satisfaction, apart from the obvious fact that if customers aren't satisfied they will desert a company in droves, is its uniqueness. Competitors can quickly duplicate a company's price, product and distribution strategies, but not its customer relationships.

This duplication has been made even quicker with the advent of email and the Internet, which mean that a company's offerings can be duplicated in a fraction of the time that would have been needed just a decade ago.

"As long as repeat business is important, and as long as customers have a choice to go somewhere else, companies must deliver the highest levels of customer satisfaction in order to stay in business" says the guru of customer satisfaction and director of the National Quality Research Center at the University of Michigan, Professor Claes Fornell.

Losing customers is much more costly than a company may initially realize. Not only is the revenue from their repeat business lost; there is also the additional cost of obtaining a replacement customer.

Vic Hunter, author of "Business to Business Marketing", says it can be 30 to 40 times more expensive to acquire new customers than it is to manage existing customers. And companies appear to be losing their customers in vast numbers. US businesses are now losing half their customers in five years (as well as half their employees in four years, and half their investors in less than one year) according to Frederick F Reichheld, author of "The Loyalty Effect".

A growing body of research has attempted to quantify the link between a company's financial performance and the satisfaction of its customers.

The leading expert in this field is the above-mentioned Professor Fornell. He has calculated that for large, public companies, a 1 percent increase in customer satisfaction relates to a 3 percent increase in market capitalization.

For a large capitalization company, a five percent increase in customer satisfaction amounts to an average US$3.25 billion increase in market capitalization.

By examining Swedish data, he also calculated that a business that improves its customer satisfaction by 1 percent a year over five successive years will on average achieve a cumulative increase of 11.5 percent in return on investment over that period.

Although Fornell is talking about large public companies, the same principles apply to the average small and medium-sized enterprise (SME). As does the reporting by the Harvard Business Review that just a 5 percent increase in customer retention can increase a company's profitability by 25 percent to 100 percent.

Not only has Professor Fornell quantified the link between customer satisfaction and a company's financial performance, he is also a proponent of improved customer service using the Internet.

In order to compare the levels of customer service given by traditional retailers with that given by online retailers, he has developed the American Customer Satisfaction Index (ACSI), a national economic indicator of customer satisfaction with the quality of goods and services available to household consumers in the US.

In keeping with Fornell's beliefs, it is the only American cross-industry indicator that links customer satisfaction to financial returns.

In November 2000, ACSI's first-ever comparison between online and offline customer satisfaction levels in the US showed that "e-tailers" (i.e. online retailers) are succeeding in meeting shoppers' demands.

The satisfaction index for online retail was 78 out of 100. The customer service model adopted by Fornell is very much based on e-commerce. His e-commerce model establishes the processes necessary to measure and monitor company satisfaction. It can result in increased revenue from such factors as making more selling time available to sales personnel, higher than normal order sizes, and improved close rate for new leads. It can also dramatically reduce the burden on a company's call center, allowing it to dedicate service agents for higher value transactions. e-Commerce makes it possible to manage and synchronize customer interactions across all touch points - face to face, the call center, the web, retail outlets, partner and dealer networks trough a unified e-commerce system.

But good old-fashioned customer service is still important, and maybe more suitable for SMEs. Although it is carried out in a different way, it will still increase customer satisfaction, and therefore their loyalty and company profits. But it has gone beyond just smiling at customers. It might be "old fashioned" but the bar has constantly been raised, and what was exceptional 10 years ago is expected as a matter of course these days.

What SMEs must do is make customer service a core value. They can do this by hiring the right people; empower their employees, soliciting and using feedback and targeting their customers. Examples of customer service include giving customers something unexpected, (like a free glass of wine with their meal), or extending the warranty on your product from one year to 18 months. With the global economy heading for a slowdown, it is more important than ever that companies do everything in their power to deliver excellent customer service.

Not only can it make the difference between a company's life or death in times of a sluggish economy, even in good times it can make a significant difference to a company's profitability.

The following websites give some more information on customer satisfaction.

www.powerhomebiz.com

"Customers the key to survival of any business" HomeBiz guides site

www.bus.umich.edu

The American Customer Satisfaction Index site

www.business-survival.com

An article from the $mall business $urvival Centre site on the importance of customer satisfaction in the construction industry.

Charles Darwin coined this phrase in his theory of evolution of plant and animal species but it is equally applicable to Australia ’s hardware retailing industry, now in the ‘mature’ stage of the development cycle. The true meaning of Darwin ’s phrase is often misunderstood; we stumble over “fittest” which in this archaic and now redundant usage means ‘that which fits best’. So in the context of Darwin ’s theory, the word fittest does not mean strongest, biggest or most athletic, rather it means the species which best fits into its environment. In other words, bigger and stronger is not necessarily better. And if you don’t believe that, ask a dinosaur.

It is nevertheless a fact that the trend in the hardware industry, in common with others, is towards conglomeration, consolidation and the development of ever-larger ‘superstores’, often to the detriment of the smaller operators. And yet it is equally true (the parallels with the natural world continue) that the emergence of a dominant form does not by itself preclude the continued existence of smaller entities. The fittest will continue to survive and even thrive – in this case, the fittest stores are those which best fit the needs of their customers.

In an industry where the opportunities for product differentiation are few and far between, price competition is fierce. So to prosper and grow, operators have to concentrate on providing customers with good value and exceptional service whilst maintaining tight control of expenses, cashflow, debtors and stock - not an easy task for smaller companies with limited resources. These problems may be even more acute for – and appear almost insoluble to - owner/managers, struggling with the day-to-day complexities of running the store. All too often owners spend so many hours working in the business that they have little time left to work on the business. That is why more and more companies are seeking the assistance of specialists who understand their industry to help them identify and focus on the key issues that drive business performance.

Survival is easier when times are good. In Australia today, the favourable economic climate fuelled in part by the building boom of recent years may encourage timber and hardware retailers to become comfortable with, even complacent about, the status quo. Paradoxically perhaps, the time to prepare for an uncertain future is right now so that when the economic pendulum swings back the other way – as one day it surely will – your business will be strong enough to weather the storm. Now is the time to evolve, to sharpen your competitive edge, to grow your customer base, to work on enhancing customer loyalty, to make all the changes needed to guarantee your continued survival. The crucial first step in this process is determining where you are today, finding out exactly how well (or how badly) you are meeting the needs of your customers, and you do that by asking them. “Focus groups”, people drawn both from your existing customer base and from elsewhere in the local community, will help you discover what it is that attracts customers to your store and what factors encourage them to go elsewhere. Their feedback will give you the framework you need to change your business and to win a bigger share of the market.

The history of life on earth is littered with the corpses of innumerable species which failed to adapt to changing conditions. The business world is no different: look what happened to Georges, HIH and Pyramid. And Ansett. Is your business destined to suffer the same fate? In a changing world, change itself is the only constant. Those companies which adapt and evolve to best fit their environment are the ones which will prosper; the rest will go into decline and ultimately fail. Which category will yours fall into? If you bury your head in the sand and fondly imagine that ‘she’ll be right, mate’, I can tell you now which one it will be. The undeniable fact is that the strategies and policies that worked yesterday may not work so well tomorrow; the market is becoming ever more competitive and in the race for the consumer dollar, those that stand still get left behind.

So start today: organise focus groups; develop a long-term vision for your company; write a strategic plan – your 5 year roadmap to realising that vision; and formulate a business plan which sets out in detail the specific changes you intend to make during the next year or so.

Darwinian theory provides us with an insight into the way entities can be affected by environmental changes but here is the difference: unlike the natural world where evolution happens by chance, in the business world the process of adaptation lies in your own hands. You can choose to act and evolve or you can choose to do nothing and stagnate. Which will you choose?

© GNS Group

John F. Kennedy in speech to a joint session of Congress on May 25th 1961 said: “I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the Moon and returning him safely to the earth”. Rarely has a strategic goal been so precisely and so concisely defined. And, as we all know, in July 1969 this goal was achieved. I guess they must have had a plan…?

As business owners and operators, how many times have you heard about the necessity of planning? How many of us claim to be so busy today we don’t have time to plan for tomorrow? The truth is that far too many businesses aim at nothing and hit it with tremendous accuracy!

Without goals, budgets, business plans and systems in place to measure your progress, you will never know whether you're on track to achieve your objectives and whether you've been successful in getting there.

What you can measure you can manage!

In order to move a business in the direction that you want, you need a performance management system that includes clearly stated goals, an understanding of the things that you must get right (Critical Success Factors CSF's) to meet your objectives and “Key Performance Indicators” (KPIs) that enable you to track and measure your progress along the way.

Key Performance Indicators generally include a mix of financial and activity (or transactional) related numbers and ratios.

For example, your objective might be to increase sales by 10% but you determine that the only way to achieve that goal is by increasing the number of customers coming to your store. In this case, your KPI would be customer (or transaction) counts, not sales, and you’d use this KPI to monitor the success (or otherwise) of your advertising campaigns and sales promotions to bring additional customers into the business on an on-going basis.

So although sales, profits and cashflow might be the outcomes you are most interested in, the fact is you cannot manage them directly. The only things that can be effectively managed are the processes and activities that ultimately generate sales, profit and cashflow.

Your vision is the starting point for an effective performance management system. The vision encompasses the commercial purpose of the business. It details your critical success factors (CSF's), those processes you must absolutely get right in order to achieve your objectives. And it provides a system to measure and monitor these activities - KPI’s – which then become the underlying drivers for growth.

In retailing, if you want to grow your business there are only 4 ways you can do it.

1) By increasing the number of customers of the type you want to have

2) By increasing the number of times customers come back

3) By increasing the average value of each sale

4) By increasing the effectiveness of each process in the business

If you can achieve some or all of these, your business will grow. These are your critical success factors; these are the things which you need to monitor. And if you get them all right, improved sales and profits will be the result.

Whatever the business, it is crucial that KPI data is easy to collect and that it is directed to those team members who have responsibility and authority to influence the activities and therefore the outcomes of the critical processes. This in turn helps the team understand the direction you want the business to go in and helps them focus on those areas that are critical for success.

To unlock the full power of KPI’s in the management process they must be reviewed and monitored on a regular basis. Regular analysis of KPI’s enables you to identify changes and trends in your business results, what's working and what's not, and ensures you continually measure your progress towards your goals.

How regularly depends largely on the KPI itself: clearly there is no point having a KPI reported daily if the critical process can only be adjusted once a week or month. At the design stage you must establish that the process is measurable and that the benefit the information will provide will outweigh the cost of obtaining and maintaining the data. And you must get the team members involved right from the start; the person who controls the process generally understands the most efficient and effective way to measure it. They will have a much better idea which numbers are important, how to gather them, how to interpret them and how to motivate the team to achieve the desired results. But remember, KPI’s are not merely scorecards of performance: if they do not point to existing or emerging problems they are of no use to management.

Don’t forget, you can only manage what you can measure. Determining which processes are critical, measuring them and (most important of all) acting when you start to drift off course are the essential parts of any good performance monitoring process. Key Performance Indicators can provide you with the crucial information you need to keep your business on track.

© GNS Group

Cash flow is the lifeblood of any business. No matter how sophisticated your processes, how wonderful your products and systems, if your business runs out of cash it will cease to exist. And it is an inability to meet financial obligations which is the primary cause of business failures. Yet surprisingly, many small businesses do not have a cash flow plan and if they do, it’s often an annual projection done to accompany a bank loan renewal or application. To know how much financing you really need you need to do proper cashflow and profit planning. Better yet, if you can manage your cash flow so that you can avoid financing you’ll save yourself some costs.

Cash flow is defined simply as the cash which flows into a business less the cash which flows out. “Cash in” includes cash sales, debts collected, borrowings, capital introduced and proceeds from the sale of equipment; “cash out” comprises operating expenses, stock and equipment purchases, loan repayments and distributions to owners.

For a business to be successful and able to meet its financial obligations, a positive cashflow (that is more cash coming in than going out) is vital. This doesn’t happen by accident, it takes careful planning; businesses which do this successfully have cash flow forecasts which they manage monthly (at least) so that they can plan for any cash shortage and put the necessary measures in place to guide the business through those times when cash is thin on the ground.

Don’t confuse profit and cashflow: just because a business is making a profit doesn’t necessarily mean it has a positive cashflow. In fact, many start-up businesses have exactly this problem early on because more often than not they are spending more money building up the balance sheet, stock or asset base than they are receiving in revenue. More mature businesses tend to suffer less from this problem and are generally good cash generators as their outflows are limited to normal operating activities. However, be aware that there are many examples of mature businesses that have run into cash flow difficulties through complacency. Being mature does not in and of itself guarantee profitability and positive cashflow.

As a general rule, you should try to finance your operations out of working capital. But don’t make life too hard: if your business needs to purchase an expensive machine or other fixed asset, this outlay of capital expenditure should be matched by long term funding such as a term bank loan or a hire purchase agreement over a number of years. That way, the cash outlays are timed to coincide with the expected cash inflows to be derived from the investment in the fixed asset. For example, if you build new retail space that you expect to use for 10 years, finance it with a 10-year bank loan. If you buy a new sheet saw that will be depreciated over 5 years, finance it over 5 years. This way (always assuming your business is profitable!) you’ll still have sufficient working capital to cover your short term operating liabilities.

If you are struggling to maintain positive cashflow, what can you do about it? There are several basic options: you can work to increase turnover, reduce costs, accelerate cash inflow or delay cash outflow. Each one of these is a subject in itself but essentially increasing turnover is the most positive approach and cutting costs the most dangerous. Yes, cutting costs will bring short-term benefits in almost every case but cost cutting can also have a long-term negative impact; failure to invest in people, marketing and technology can leave you falling behind your competitors.

Managing cash flow means measuring it. Cash flow forecasting is an essential management tool, allowing you to understand the peaks and troughs of your business and to understand the affect of seasonal variations, credit policies, and balance sheet transactions.

Jack Welch, former CEO of General Electric, said: “The three most important things to measure in a business are customer satisfaction, employee satisfaction and cash flow”. It’s interesting to note that 2 of those 3 are non-financial measures. When you implement KPI systems, make sure you have a good mix of financial and non-financial measures so that you can manage your business effectively.

You must have a Cash Flow and Profit Plan for at least the next 12 months of operations so that you’ll know:

• How much cash your business will need

• When it will be needed

• If you will have the cash you need or if you should apply for financing (this process takes time)

• If it’s probable that a bank or other institution will loan money to your business. (Creditors require certain base equity capital investments before they will loan debt money)

• If you will have excess funds to place into short-term investment or long-term asset building

You’ll then be able to structure your business’ policies for working capital management to meet your cash needs or work with your accountant to apply for financing. Once you have your 12-month forecast you should “roll it over” on a monthly basis so that it remains current, otherwise it will be out of date virtually as soon as you have completed it.

Remember, you can only manage what you measure. So implement a cash flow forecast today and take control because maintaining positive cash flow is essential to the ongoing health of any business.

© GNS Group