Stephen has a varied background in
business and accounting and works with SMEs on providing services and
information to help them run a better business.
Today we discuss getting PAID!
Your business does the work, but when do
you get paid and how do you manage this when crazy things like global pandemics
pop up.
Surprisingly, he doesn’t suggest hiring
Pennywise the clown to make your collection calls!
Receivables are an investment your
business makes into the business of your customer.
How do you know when it’s ok to extend
credit and how do you manage being told that the ‘Cheque is in the mail?’
Get a cup of coffee and join Stephen King
and I for this interesting conversation about collections: https://youtu.be/u-eBNJD7iO0
Learn how to buy an already-successful and
profitable business even in the covid-recession of 2020: https://www.BusinessBuyerAdvantage.com
**Now
with a new section on buying distressed businesses.
On Saturday, I was one of the speakers and I spoke
about business promissory notes from the point of view of an investor who may
wish to buy one.
I made a bootleg
recording and for the month of May only
it is included as a special bonus in my online exit-planning course.Enroll here: www.HowToSellMyOwnBusiness.com
If you want to improve your small business come meet
me May 29 in Toronto (virtual
attendance also available) Learn
more here.
The Art of Cash Flow: Tackling the Lifeblood of Your Business
A Virtual CFO’s step-by-step guide for service-based businesses. by Jody Grunden.
Over the next seven minutes or so, you’ll read about the power of cash flow in a service-based business.
I’ve spent the better part of 15 years as a Virtual CFO, helping service-based businesses boost their financial health with stronger forecasting and cash flow management.
In this article, I plan to answer the following five questions:
What kinds of businesses can produce the most cashflow? Are there certain types? Let's see.
Transcript
Hi there everyone it is
David Barnett and this week I am answering a question from Bruce and Bruce
asks: What are the best businesses to buy with respect to cash flow? Now as far
as my understanding of what cash flow means is I want a business where a high
percentage of the sales ends up down in my pocket. So, there is really three
categories of businesses as far as I am concerned that can create a high degree
of cash flow.
The first sector is
what we will call regulated businesses; now when you first think about
regulated businesses you might think about larger businesses like: power
utilities or natural gas pipelines for instance. Anywhere, where rules and
regulations prevent new competitors from entering the market. This can be good
for protecting the profitability of the players that are already
there. Now, in some jurisdictions there are some regulated industries that
would be considered small businesses that you could get into. Where I live for
instance it is highly regulated who can be in the bottle return business, so there
is only a certain number of a licences out there. And what that does is
it limits the competition for each region of the providence meaning that the
operator who has the licence can probably get a little bit more profit out of
that business than he would be able to if there were many competing
businesses all around him, so that is the regulated industries.
The second category
would be your service businesses where you don't have a high cost of goods
sold. So this would be in contrast to a business where you sell goods; let’s
say I sell oil I take in a dollar of sales I might have to take $0.90 of that
dollar and turn around and use it to buy my product. So, that is a
commodity business, I wouldn't consider that a high cash flowing business. If
you compare that to a service like house cleaning, you may have a labour
component but you can adjust your labour input to meet demand, to meet the
sales. So if you don't have work and you don't have homes to clean you then cut
back on the hours that you employ your employees so that you can have more of
your sales fall through to the bottom line. And that is why there is such a
huge service sector in the industry and I even consider things like restaurants
to be part of the service sector. Because, they tend to have a low cost of
goods sold. if you can meet that breakeven point every month. Then a high
percentage of your marginal sales over break even ends up down in the net
income one.
The third category of
businesses that would be a high cash flowing sort of business to get into would
be a business that you work once but get paid many times. So, think about for
example the books that I write; each one of them took days of my time and
effort to write and then edit and then prepare them. But now that they are done
I can sell them over and over again and every time I sell them I earn money but
I don't have to do any work. That is why we see such crazy sky high valuations
in the world of IT or online businesses. There is a term in the online world
called "SaaS" or software as a service. Where they take what might
have been years ago a piece of software that you would buy but instead of
selling you the software they put it online and they let you use it for a
monthly fee. There are all kinds of things on there now that you can probably
find that can be offered as software as a service like accounting packages and
things like this. Even google apps like google docs if you are business; you
can sign up I think, I believe it is only $5 per month per user.
But if you consider the
fact that the work gets done once and is now out there on the internet and now
serve thousands or tens of thousands or millions of people with the same
platform then obviously all these customers that come in are creating more work
for the people that built the system. Now that it has been built it is up there
it is running, so those are your three categories; regulated businesses,
service business and call it technology or intellectual property businesses
where you create or do something once and are able to sell it many times
over.
Anyway Bruce I hope that was
helpful for you and as always if you enjoy my video please like or share it
that is how I grow my viewership and if you want to make sure you don't miss
out on any of my latest offers or new videos be sure to subscribe to my email
list.
Today I wanted to share an excerpt from my book Credit Card Advantage. It's easily the least-popular of my books but it holds a lot of real value for those of you who own small businesses.
The section I'm sharing today is the strategy section, just a couple of pages out of the whole book.
These strategies and the contents of the book could have a huge impact on your small business. Get your copy of Credit Card Advantage here: http://gumroad.com/l/jgfa
This is the
easiest strategy to see and it was probably suggested to you by your banker at
some point. If you put business expenses
on a credit card and collect points that you use for vacation travel you’re
doing this now. Let me ask you some
questions though: do you know what your return on spend is? What are points worth to you? What is the
potential opportunity for you if you were to strategically maximize your card
usage? We will explore this in further
sections.
Most
nations require their citizens to report the value of any point usage when they
redeem for something of value on their personal tax return. Most business owners, however, forget to do
this.
You may
want to use this strategy if your company:
·Is
very mature with little growth opportunity ·You
are getting older and want to accumulate points for travel in retirement
If you want
to increase company profits you can use credit card points to reduce
expenses. I’ve heard of companies using
points to fly sales staff or pay for hotel rooms. I know of companies using points to get gift
cards for employee bonuses. This is
certainly one strategy which won’t get you into trouble with the taxman since
it will increase your net-income and increase your tax burden. One factor that will enhance any of your
goals is that using credit cards instead of cheques will reduce cheque printing
costs, bank fees, postage expense and stationery spending. Not to mention the cost of handling all that
paper.
You may
want to use this strategy if your company:
·Is
in a highly competitive market where there is constant pressure on prices ·You
don’t see the opportunity for much growth ·You
are trying to service and pay down long-term debts in the business
If you can
delay paying suppliers and hang on to your cash longer, you can create a
one-time change in operating capital. I
once ran a company with long payables and short receivables. I actually had none of my own money tied up
in operating capital. Charge card
products are a strategic way to extend days
payable outstanding. DPO is the
average length of time you hold onto your suppliers money before you give it to
them.
You can
also expand operating capital by accepting credit cards. This shortens the days sales outstanding or DSO.
I’m going
to teach you all about how to calculate the cost of money on a daily basis so
you can see if certain strategies make sense for you or not.
You may
want to use this strategy if your company:
·Is
growing quickly and is always looking for money to finance operations ·Has
the opportunity to grow but customers demand long payment terms ·You
have all your net-worth tied up in the business and you’re looking for ways to
extract capital in order to diversify your own investment portfolio.
“Enter to
win an iPad with every purchase” screams the banner over the store
doorway. If you could constantly offer
promotions like this would it help your business? What about a free vacation for every distributor
who shows a 20% growth in orders this year?
Do you think these companies pay for these incentives? Many of these incentives and giveaways are
purchased with points at no cost to the company and help to boost sales. Would this work for you?
You may
want to use this strategy if your company:
·Has
an opportunity for growth ·Is
in a highly competitive industry or market ·You
are trying to prepare a business for sale and want to make it look as good as
possible for potential buyers ·You’re
just starting out
If you
wouldn’t benefit from offering incentive prizes to customers, how about
offering great raffle prizes to community groups? Imagine the local boys &
girls club selling raffle tickets on a fancy $1000 home espresso machine…
sponsored by your company. You can help
groups in your community turn desirable items that you got for free into hard
cash for their group all while enhancing public opinion about your firm.
You may
want to use this strategy if your company:
·Is
in a highly competitive industry or market ·You
are involved in activities that may create ill-will in the community such as
clear cutting or you create a lot of air pollution ·You
suspect a larger and stronger competitor may be on its way to your market
I was asked by my friend and business coach Marc Mawhinney to provide a guest post for www.marcmawhinney.com. Marc works with entrepreneurs and those who are starting their entrepreneurial journey. Here is what I put together it appeared last week:
I’ve owned 5 businesses. I regularly work with business owners to improve their systems and processes. I’ve also had a career as someone who helped people buy and sell businesses and I can tell you that I’ve learned a lot from all the successful (and not so) entrepreneurs that I’ve met over the years. When asked to come and do a guest blog post for Marc about what to remember when starting a business, here’s what comes to mind:
Cash Flow: The purpose of a business is to make money. It should do this every month, right from the start. Do not encumber your young enterprise with obligations it can’t meet like costly overhead at the beginning. Use outsourcing and rent/borrow as much as you can to keep monthly commitments to a minimum. ‘Burn rates’ are for Internet businesses that have been capitalized with millions of dollars from venture capitalists.
Vendor trade credit: Most people think about making the sale and not how they’re going to be paid. The awful truth is that when you’re new, you may find customers that your competitors don’t want because they are terrible at paying on time. What are the normal payment terms in your industry? Should you be extending trade credit to your customers? What is reasonable and how will you enforce the credit terms? A bad debt can kill a new business. Accepting credit cards to eliminate receivables can be a smart move for new companies.
Over-estimating sales penetration: Did you hear the joke about the entrepreneur who said he was being conservative about estimating that he could capture 1% of a billion-dollar industry? I see this all the time. That’s not how you estimate sales. Your sales projections should be based on these questions: how many calls are going to be made each day? How many sales appointments will this result in? How many of these appointments will lead to a sale? How long will it take to deliver the service/product? How long will it take to get paid? As you can see, sales are a function of how many clients you can touch and sell to, not how big a market is.
Yesterday's post reminded me of the story of the broke bushwhacker.
He was the inspiration for one of my 15 free finance articles which discusses the need to match financing tools with asset lifespan.
Enjoy.
Also, I'm almost done working on my 16 week curriculum for the 'Business Buyer Secrets' study course/coaching program. I'm probably going to give it a nicer name as well. Stay tuned.
I spent some time speaking with an investor who has read my book, Invest Local. He was asking about whether or not to ask for personal guarantees on the lease he was thinking about investing in.
I discuss my advice and why my suggestion can help to determine the confidence of the borrower.
Thanks for watching. Also, buy my book if you're interested in learning more about these topics.
