Why does a profitable business have no money in the bank?

“Never take your eyes off the cashflow because it’s the lifeblood of the business.” – Sir Richard Branson

After delivering a couple of session on managing cash flow properly I thought that I would summarise what businesses should be looking out for and applying to their own circumstances. There’s a massive difference between profit and cash. Let’s explore the differences to make a better plan to increase both.

1. Sales.  Profit increases when you increase sales; cash increases when you collect the money from customers. To increase both your profit and cash from sales:

Delight your customers

Generate more leads and referrals

Convert a higher number of quotes or proposals

Increase transaction frequency

Increase transaction value

2. Invoicing.  Profit increases when you send an invoice to a customer; cash increases when you collect the invoiced amount. To increase both your profit and cash:

Set clear Terms of Trade

Offer a small discount for early payment

Agree the price in advance

Stick to your payment terms

Don’t do work for people who have overdue payments

3. Margins.  Increasing your margins will increase your profit; collecting the increased margin will increase your cash. To increase both your profit and cash:

Increase your prices

Invoice faster

Negotiate better payment terms with suppliers

Reduce errors and rework

Train and empower your team

Increase your efficiency

4. Financing.  Reduce your finance costs to increase your profit; borrow money for assets to increase your cash. To increase your profit and cash through financing:

Spread the costs of assets over 3-5 years instead of buying them outright (e.g. vehicles)

Borrow from a bank instead of a finance company

Secure the asset purchases over ‘bricks and mortar’ (if possible)

5. Overheads.  Reducing your overheads will increase both your profit and cash. To reduce your overheads:

Negotiate with suppliers

Measure your return on your spend (e.g. advertising, accounting fees, etc.)

Review your subscriptions

Go paperless

This is not an exhaustive list of ways to increase your profit and cash. I can help you identify specific areas of improvement in your business to increase both profit and cash. So email me today, Julia@leasakas.co.uk