If you have ever struggled to manage the cash flow of your business then you need to listen to today’s Thrive Time Business Coach Radio Show. During today’s show, Clay Clark and Doctor Zoellner discuss the importance of not signing long-term auto-renewing contracts, the importance of negotiating with vendors, how to watch your expenses like a hawk, how to track your financial data, how to use consumer financing and payment plans and how to use an automatic clearing house service.
Super Move #10 – Automatic Clearing House (ACH) – I would accept ACH payments unless any of the following statements is true:
You believe money to be the root of all evil, based on a gross misinterpretation of 1 Timothy 6:10 which actually says, “For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.” The love of money is evil; not the money itself.
You enjoy playing the “Let’s See If We Are Going to be Able to Pay the Bills Game” each month.
Super Move #11 – Consumer Financing and Payment Plans – I would work hard to set up third party payment plan options for your customers, if at all possible, unless:
You cannot strike a deal with third party payment plan providers such as Wells Fargo, Synchrony, or CareCredit (for the Medical Services industry). I would strongly suggest that you not offer in-house consumer financing on products and services because as soon as you do, you shift your company’s focus from your core niche to becoming a collections agency.
Super Move #12 – Web-Based Transactions and Online Shopping Carts – I would create an online shopping cart for the products and services you offer unless any of the following are true:
1. You don’t want to publish your prices online because you custom quote every project.
2. You need your customers to buy your products and services in person because you offer an experience with your products and services that cannot be duplicated online.
3. You are totally unwilling to learn how to set up an online shopping cart that has the potential to produce copious amounts of cash for your business.
SUPER MOVE #13 – Assume your bookkeeper or CFO is stealing money from you all of the time
I worked with three small business owners this year who discovered that the person handling their finances had stolen at least $20,000 from them. One person had over $80,000 stolen from her. Trust no one. Insist on having the weekly accounting meeting that I discussed previously.
Notable Quotable: “In God we trust. All others bring data.” -W. Edwards Deming
(Famous management expert and best-selling author who many create as being the catalyst behind the post World War II economic miracle of industrialization that Japan experienced between 1950 and 1960)
SUPER MOVE #14 – Track your financial data so that you can better weather predictable seasonal up and down cycles in your business
Most brides want to get married in May, June, September, or October and most companies want to have their politically incorrect Christmas parties during the month of Christmas (December). Thus, I had to plan for this in my entertainment business. Every year, I had to make sure that we were fully staffed with DJs during peak seasons and with enough quality salespeople during the off months to bring in enough deposits to keep the business going until we hit the busy months again. It was very feast or famine at first. However, after about three years of tracking the cash flow cycles, I began raising the deposit amounts during the months where we weren’t doing many shows and raising the prices during the months when we were doing a ton of shows. This little move is referred to as “price elasticity.” I first learned about this SUPER MOVE when reading, Nuts: Southwest Airlines’ Crazy Recipe for Business and Personal Success by Kevin and Jackie Freiberg.
Notable Quotable: “You’ve found market price when buyers complain but still pay.” -Paul Graham
(The venture capitalist and the co-founder of YCombinator, the ultra-successful entrepreneurship incubator famous for helping to launch Airbnb, Reddit, Dropbox, etc.)
To stabilize your cash flow through the year, take the following five action steps:
1. Enter the income and expenses for the past 12 months into a spreadsheet.
2. List a minimum of three factors that are causing each month to be up during the peak months.
3. List a minimum of three factors that are causing each month to be down during the slow months.
4. Write down three ideas for how you could sell more to your existing customers during slow months.
5. Consider creating a sales holiday or event to stimulate business in a slow month. You could come up with a NO INTEREST FOR FOUR YEARS special during a slow month. You could come up with a buy-one-get-one-free special. You could come up with a 4th of July Blow Out Special! You could attempt to create the World’s Largest Snow Cone to attract customers who are staying inside and out of your store because it’s so cold. You could rent an inflatable gorilla and have massive inflatable slides in front of your appliance store to celebrate your Customer Appreciation Weekend. I actually worked with a major appliance store to invent sales events and sales holidays and it works! People see the inflatables, the signs, and the balloons and they show up and buy stuff.
Thrive15.com investor and mentor Arthur Greeno actually attempted to build the world’s largest snow cone and earned both national attention and tons of customers who treaded out into the terrible winter weather to take a glimpse at his magical snow cone and buy some chicken. Watch the story at: http://www.newson6.com/story/14008387/largest-snow-cone
Hobby Lobby is famous for placing most of their inventory on sale at 50% off at one point during each month. They basically set their prices much higher than they need to be and then they offer deep discounts each month on seemingly random items to convince you and me to come in to buy that item. Then while we are there, we end up buying a bunch of other items at full-price. I wouldn’t call this a loss leader strategy because Hobby Lobby still makes good profits on items they are selling for 50% off.
Here are a few bonus suggestions:
1. Write down three ideas you have to bring in more revenue by encouraging your customers to pre-book or pre-buy your services.
2. Write down three ways you could trim labor costs during your slow months.
3. Write down three ways you could move around the members of your team to different departments where you might need more help during certain seasons of the year.
4. Write down any inventory items you could purchase in bulk ahead of a busy season to help increase your profitability during the busy months.
5. Write down three ways you could increase your capacity to bring in more money during the peak seasons by being able to work with more customers.
6. Consider selling a monthly or upfront service contract with the purchase of an item. For example, if you are a contractor and you install sinks, showers, wood floors and cabinets, consider selling a service contract for 5% of the price of the item that guarantees that you will come back and fix anything that breaks during the first 12 months after installation.
7. Consider offering a next step service. For example, if you are a men’s grooming business that offers men’s haircuts, consider also selling style consulting, hair products, and men’s clothing items such as socks, scarves, watches, etc.
8. Consider offering a long-term contract to your customers in exchange for a discount. This can help you better forecast your company’s financial future.
EXTRA Bonus Idea: Consider eating ramen noodles for every meal. I’ve done it for a few months. Not good, but it’s cheap and loaded with unhealthy sodium. Deer will start seeking you out as a human salt-lick.
SUPER MOVE #15 – Schedule a weekly time to watch your expenses like a hawk
I realize that very few hawks literally watch financial numbers, but you get what I am talking about. Typically, when a business owner starts their business they are frugal out of necessity. However, over time as more and more money starts flowing in, many entrepreneurs start adding monthly expenses that are not justified by a proportionate increase in income. When you first start out in business, you hire a salesperson who also helps you run errands. Over time, you hire a salesperson who is a sloth, but because you are too busy to either train them or fire them, you hire another salesperson who also turns out to be dysfunctional. Soon your profits disappear and you find yourself frustrated and with a big staff of non-performers. Don’t let this happen to you. You must schedule a weekly time to look at all of your expenses and ask yourself if each expense is helping you to make more money or not. If it’s not, blow it up.
I once worked with a fitness-related business that hired a super sales guy and trainer. This guy was great at training people and at selling. In fact, he did so well that the business grew from the owner and this sales superstar to a team of eight trainers. These other trainers were never fully trained and so they did not know how to bring in new business. Furthermore, they were bad trainers so they did not help keep business either. However, they did get paid. When I sat down to work with the owner, I quickly discovered that he was investing zero time in training his new team members or holding them accountable. He was focused on trying to generate new customers when in fact, his closing percentage had gone down from nearly 90% when it was just he and the other guy to a low of just 5%. Can you imagine how awful he felt when I pointed out the numbers to him? Here he had been spending thousands and thousands of dollars on marketing and his team wasn’t even returning the calls of the inbound inquiries from potential customers or returning the customer service-related calls of his existing customers.
Notable Quotable: “Control your expenses better than your competition. This is where you can always find the competitive advantage.” -Sam Walton
(The self-made billionaire founder of Walmart and Sam’s Club)
SUPER MOVE #16 – Seek out ways to buy more from fewer vendors in exchange for better pricing
If you are buying your pens and printer paper from Vendor X and your paper towels from Vendor Y, reach out to them and let them know that you are considering consolidating all of your expenses to one vendor in exchange for a deeper discount and better overall pricing. See if you can join a buying co-op group within your industry or if you can qualify for Chamber of Commerce or trade association-related discounts.
As a sick example, I recently spoke to an association of funeral home professionals (as opposed to funeral home amateurs) and I discovered that both you and I could save money on the purchase of good quality name-brand embalming fluid if we became a member of their professional association. I dislike myself for using this example.
SUPER MOVE #17 – Let your vendors know that you want them to compete for your business without being a jerk about it
It’s very important that you let your vendors know that you are looking for a good and fair deal with each vendor. Let them know that the pig vendors will get fat and the hog vendors that attempt to take advantage of you will get slaughtered when you switch to another, more fair vendor. It’s occasionally important to reference the name of a vendor’s direct competitors if you feel that you are not getting a good deal or are being taken advantage of.
SUPER MOVE #18 – Don’t sign any long-term contracts that automatically renew
Make sure you do not sign any standard long-term contracts provided by vendors that state you will automatically renew your contract at the end of the term. Cross out that standard language and refuse to sign.