293: Unblock Your Cash Flow: Strategies to Free Up Money Fast

Michele: Hello, my name is Michele and you're listening to Profit is a Choice.

Have you ever found yourself in a place where the cash flow just for whatever reason, wasn't flowing? You know, we all may get here at some point in our business, and the truth is cash doesn't always just stay steady. It does, it goes up, it goes down, it comes in and it goes out. We're going to talk about on the podcast today how to get the money moving again in your company while taking advantage of some quick wins, while also planning for a longer range cash management strategy.

Every day, empowered entrepreneurs are taking ownership of their company, financial health, and enjoying the rewards of reduced stress and more creativity. With my background as a financial software developer, owner of multiple businesses in the interior design industry, educator and speaker, I coach women in the interior design industry to increase their profits, regain ownership of their bottom line, and to have fun again in their business. Welcome to Profit as a Choice.

Okay, so you're in a really good sale cycle and you're finding that the money is coming in, but you're also discovering that the money that is going out every month that you're spending on products and the operations of the company is almost dangerously close to what's coming in. Perhaps you're even digging into reserves a little bit. And we all know that it feels so much better to have the money coming in instead of the money going out at any, any given time. So, when this happens, it absolutely causes stress, it causes an inability to sleep well, it causes the feeling of honestly having to take jobs that you don't want to take because you're fearful of not having enough money, so you're saying yes when you should say no. I'm trying to think of some other things that we see when this happens. We see a lot of not knowing how to spend the money so we either go into an overspend, which sounds really weird, we don't have enough, but we overspend. What we're doing is we're trying to solve the problem by throwing more money at it. or we can also see kind of a stinginess happen where we start withholding and we don't spend money that we need to spend to solve the problem. And so, it's really just because we get locked down and we don't know how to get out of it. And so, what we're going to look at right now for our next few minutes together are four areas that can help us get cash flowing again, which then will restore that peace and hopefully help us sleep better at night so that we can make better decisions. We just make much better decisions when we've had good rest, good sleep practice, good eating and health, and then those things start to go away because of the worry and the stress that comes from not having enough money. As we all know, one of the number one reasons is that small businesses fail is lack of cash and lack of cash flow management.

All right, number one, here's the very first thing that you can do if you say, oh my goodness, my cash is dried up, it slowed down, it's not moving the way that I need it to move to successfully sustain my business. The very first thing is to look at your accounts receivable. Many of us, unless you are paid 100% in advance for every single thing, all the time, may have some bills or invoices that are out there that we are waiting on our clients to pay us. And so, it's not uncommon. Some people have a lot more based on their pricing strategy and their money management strategy of how much they get in advance or at the end. And some of us may have less. An area that I see a lot, especially on the design side, is kind of sometimes that final bill for either some part of an installation or the freight fees that come in later, kind of after everything else is done and not following up in a timely manner. So, what do we want to do? We want to go to that accounts receivable report, run it, look at what's overdue 30, 60, or 90 days. Start asking the question, why is that money sitting in accounts receivable and not sitting in already received, AKA our business account, know our revenue bank account that we can spend. Start asking is there anything that we need to do on our side as the business to satisfy a need that would allow that money to be paid? Maybe they're waiting for the last couple of things that need to be installed. Maybe they're waiting for this one item to be repaired. Whatever it is, make a note of what it is because the faster you can get that done and facilitate that, if there's any way to move that forward quickly, then you'll get that done for them and you'll get your check or your payment on the other side. And so, we want to look at how do we keep those things moving. When we're really busy and cash is coming in, it's very easy to take our eye off of that and not move things through that pipeline as quickly as possible. We may also want to start looking at when's the last time we asked for payment. Maybe we've satisfied 100% of our agreed upon contract, but they just are slow to pay for whatever reason. When's the last time we asked them; do we need to go further? What needs to happen? And then is there anything that we can do to kind of make it go faster? One of my clients recently called a vendor that owed her money and just said, hey, I'm going to be by your office, can I stop in around lunchtime today at noon and pick up the check? And they were like, of course, come on in. And she had been waiting weeks to get that check in, but by just saying, “I’ll stop by” and yeah, was it a little bit more, you know, difficult for her? Should she have had to? Absolutely not. None of that is true. But she needed the cash to keep the money flowing and so it was a way to get it in. So go back and look at your AR and see if there's anything that you can do to facilitate moving that from an accounts receivable, what somebody owes you and moving it more quickly into what we would consider received.

The second is to go look at your retainers. Many of you also take 100% upfront or 75% upfront, or even 50% upfront. When we're taking money in advance of how we're spending it for our clients, usually if we have good money management practices within the firm, that means that were not going to take that money and put it into our income account to use for our own business expenses until we have earned that money, meaning we have provided the product or the service that is associated with that prepayment. And so, we would carry this balance in a retainer account or a liability account saying it's not really mine, it's theirs and I've not done everything I need to do to be able to move that money in. So when we were having a cash flow issue, one of the things we want to do is go look at that account, not to just go take the money out, but to go look at the account similarly to the way we looked at that AR account and ask the question, what do we need to do or provide with regard to product or service so that we can earn the money in the retainer account faster, bill against it, invoice against it, and move the money over into our earned account so that we can start using it for day to day business operations. Again, sometimes it's that we've already earned the money, but we've not gone through reconciliation practices to submit the bill or the invoice to ourselves for that account to move the money over. And so, I highly recommend that we are constantly doing reconciliations of that liability account if you have one or multiples, regardless of how you're holding the money. But do an analysis of it to make sure that if you're holding it back, there's still work to be done to earn it. But if the work has been done to earn the money, then the money is being moved over appropriately so that it can be used for your day to day activities.

The third thing that I'm going to tell you, and I know you've heard it a thousand times from a lot of other people, but it's because it's true. Look at your billable time. Look at your billable time, your price and the capacity that you have. So, a couple of things that can happen. The fastest way to bring in revenue that goes almost straight to gross profit and drops down to give you the ability to manage the day to day activities is going to be time billing. Rarely is there a lot of cost of goods associated with it. If anything, it might be for, you know, an outsourced draftsperson or something like that. But for the most part we're keeping that money in house for the daily operations of the business. And so, look at how much time everybody is billing Are they billing at full capacity? Do you know what their full capacity is and do they or do you have an idea of I need to bill 15 hours every week, or I consistently need to bill 20 to 25 hours. Whatever that threshold is, do they know it and are they meeting it? Because if your business was built off of somebody billing out at 25 hours a week and they are historically billing out at 15 hours a week and you haven't brought them up, or they've not gotten themselves up to those 25 hours, there's a gap there. And that gap is probably where you're feeling this strain of the cash flow. And so, it is super important when you create a business financial plan that is built with billable capacity in mind. Billable thresholds, those thresholds are shared with the team. They know what they need to bill and do so that then you can make sure that the right amount of work is coming in. But it doesn't do us a lot of good if we're billing, if we're also billing at the wrong rates. And so, this is where it's important to go back and look at the rates that you're billing. If your rates have not been raised in a year, maybe it's time to do that. Some places raise them every 6 months and so that it compounds and it becomes a smaller amount every time that goes up. Everything around us is costing more these days. And so just really look at are you billing as much as you can time wise? Are you billing the amount that you should be billing price wise? And then make sure that you're billing for everything that you do. So, what also happens is sometimes there are areas of the company that we do work in, or we have certain tasks that we do where we are not thinking of them as billable. And so, the question is, would I have to do this task if I didn't have this client? If the answer is no that you wouldn't have to perform the task if you didn't have the client, then it is usually somehow client related. And so just make sure that either you're billing for all of that time or that your billable rate includes enough non-billable time to cover more than just what you're doing. So that's how you can make sure that the price and the timing are all aligned and that it supports the plan. When you look at the capacity of what your team can build and you look at what they're required to bill within your financial plan, you're going to know if it's even going to be possible to get out of the cash flow crunch just based on the design that your team is doing.

The fourth thing that I would tell you to do is consider your markup on product. Okay? So, what you're going to do is review your markup percentage. Some of you might use margins, that's fine. It's all the same. It's just coming from one side or the other. But what are you marking up? How much profit are you making ultimately on the product that you're selling? Is it enough? Are you charging that markup on shipping and installation and other services? The biggest goal in this exercise is to check the revenue, or the income that you're getting for the product and for the services related to that product. So, installation, shipping, handling, you know, tariffs, whatever it is, and then look at the cost of goods. Because when the cost of goods is higher than the revenue, that's a flag that you're not making the money that you need to make. But also, if you are not marking up on some of those other ancillary services that you're doing such as installation, shipping, handling, all of those don't get a markup at all, and you're running those dollar to dollar, penny to penny, then what happens is, number one, it's going to distort somewhat the markup on all the product because then you're looking at just markup on hard product, not on the full delivery of it. And it's going to mean that the profit from that product has to cover so much more than it would if you also added some amount of markup on all of those services. I mean, we do tax shipping, so why not markup shipping just a little bit? And I say that because if you're not billing directly dollar to dollar, penny to penny, it can be very easy to get underwater on that so that you're absorbing more cost because you don't want to pass them along to the client, and after a while you're eating into your profitability. Make sure that you're doing that deeper dive for each of these categories to really check if this is the revenue coming in into the category. This is the cost of goods and services related to that category, and then what is my markup? What is my margin? Is that healthy? Is it within the standard that I had said for the strategy that financially I'm trying to create in the company?

We've talked about receiving money that we've already earned, how to get money in that we've already earned or that we're leaving on the table in some way, but the last way to also make cash flow is to make our cash stretch. And by that what I mean is doing an expense scrub, digging into your expenses. Everything's costing more these days. So really asking are the expenses that we have is that dollar amount, is it really covering everything? Is it the best decision? Am I buying the things that matter? If cash is tight, we want to reduce all extraneous spending. So, we really just want to spend on what is most important and what is right at the right time. I want you to look at things like what is the return on investment of some of these spends, especially in your advertising and marketing department, or anything that you are getting a service for. If I'm spending X, am I at least getting Y? Like where is the benefit that it's providing? And make sure that there is definitely the benefit there for the price that you're paying. Again, sometimes when we get overwhelmed and we're busy, it's easy to not look at those things, but when every dollar and every penny counts, that's really where we need to go. We want to exercise our ability to pull in all the money that we've earned, and then we want to manage it really, really well. You've probably heard me say making money is not difficult, it's really selling the right product or service at the right price to the right person but then managing the heck out of it. So that's what this expense management is allowing you to do, is to say, I'm going to spend this money and the best way at the best price for the best product and service at the right time. And so just get really familiar with those expenses again and see what you can bring down. So then, if you think about it, cash flow is usually enhanced by ensuring that we've got the right pricing, that we're monitoring the cost of the product and the cost of running the business, and then that leads us to profitability. So, we're bringing in money that we can earn or have earned, and managing that effectively, and then we're managing the spend on the other side.

So again, we're going to look at accounts receivable. You're going to check out your retainer account, going to look at your billable time and pricing and capacity. You're going to look at the markups and the margins, and then you're going to look at your expenses.

I have two programs that are really great for understanding some of these financial. I have a lot of programs, that's all I do, right, is deal with financials and financial understanding, newsletters and all the things. But I've got two that are effective and open right now for you. One is starting October 2nd through November 13th; I'm going to be teaching my signature Pricing Without Emotion course. This course has been taught since 2009, and I'm going to be doing it through a live coaching course. We did this last year; we do it once a year in the fall. It is over 19 lessons that you're going to do in an online educational portal, with Q and A from us. You're going to have worksheets that you're going to be doing, and I'm going to be leading you through it through four live coaching calls for one to two hours on each call to really help you make sure you understand the deep foundations of pricing. Not just here's a pricing structure or here's a pricing guide, but how do I really go down to the deepest parts to understand what affects pricing so that I can look at all of these things that we're talking about and create this beautiful strategy of how we're going to make money in this company and how can I tweak and where to tweak if the money is coming in quickly or if it's not coming in quickly enough. You can find out more by going to Scarletthreadconsulting.com.

The other thing I will say is many, many people at this point in the year, in this fall area, they're starting to think I don't really have my arms wrapped around all of my financials in a deep enough way to be able to do all of this by myself in the new year. In that case, I really want to recommend that you look at our CFO2Go program. You can find out information about that at scarlettheadconsulting.com as well. That is a one to one program where I will work with you, crack open your books, put you into Metrique Solutions, help you tie all the numbers together, help you create a financial strategy for the next year that supports your overall business strategy. We'll look at your pricing, we'll look at projects if we need to, we'll look at all the things that help you, in a one to one way, really know and understand the financials of your company.

So I invite you for these two programs right now to just think about how are you going to take control of the financials in your firm so that you can make that cash flow in a way that is comfortable, that allows you to sleep, that allows your company to be sustainable, and money to go into the bank for the next year, some type of an investment, and ultimately to come home with you, the owner who's working your rear end off to be able to make the money. I can help you do that and would be honored to do so. You can check it out again at scarletthreadconsulting.com. I'm going to invite you to work to be profitable. Because profit doesn't happen by accident. Profit is a Choice is proud to be part of the designnetwork.org where you can discover more design media reaching creative listeners. Thanks for listening and stay creative and business minded.