My Cash Flow Doctor | Small Business Consulting Company | Austin Texas |

In this weeks post we continue to look at your main cash (and profit) generating system…….MARKETING.

In the previous post discussed your brand, today we'll look at your ideal customer profile by answering these questions by trying to get into their minds and understand what their lives are like. Think of your own life experiences…..are they similar? Different? How?

• What are their personal and professional goals?
  
• What media channels do they use and how do they consume media? In many cases people consume TV media and then go online to research a topic or product that they saw on TV.
  
• Are you going to build a one-time (transactional) or long-term (relational) experience?

A key mistake I see made is rushing to "get something out there" without really thinking about your customers profile, unfortunately failing to do so rarely leads to the desired result of more customers.

And having a website, Facebook page, YouTube, and/or Twitter presence is NOT a substitute for a poor marketing message. Take the time to thoroughly answer these questions and then develop the message and brand that your customers want.

"To your health, wealth, and happiness, I'm the Cash flow Doctor, and I make house calls"

Doc

P.S.- Next time we'll discuss how to develop your emotional benefits.

Are your suppliers calling you for payment? Is the money that you owe to your suppliers for materials that you purchased for your products and services over 30 days old?

If you have more than 20% of your total money owed to your suppliers over 30 days past-due you may have a problem (you can readily check this by running an A/P Aging Summary).

I suggest that you have a weekly AP (accounts payable) meeting with the person in your business involved in paying the bills (you can combine this review with your weekly AR meeting for efficiency).

Have them determine why your bills are past due. Is it because collections are behind? Or maybe there was a price increase for the materials you purchased and your price didn’t take the increase into account? 

Regardless of the reason you need to act quickly!

While you are trying to determine the cause(s) you can take some proactive steps by contacting your suppliers, acknowledging that you are behind, and offer them a payment plan. Perhaps you can negotiate partial payments while still keeping your credit line(s) open……BE PROACTIVE!

Remember, your suppliers deal with a lot of other businesses that are probably in a similar situation, and they will appreciate (and work with) those that are proactively making an effort to pay their bills.

Try not to compound the problem by ignoring their attempts to reach you to discuss your payment status, this will probably erase any good-will that you may have established and could make it difficult for you to establish (trade) credit in the future.

"To your health, wealth and happiness, I'm the Cash Flow Doctor, and I make house calls" Doc

p.s.- If you need help with your Payables and Receivables process drop me an email, I can help get them fixed for you.

How current is the money that is owed to you for the products or services that you have provided?

If you have more than 10% of the money owed to you over 30 days old you may have a problem. You can readily check this by running an open invoice report, something you should do 1-2 times per week.

But you need to act on the information in the report!

I suggest that you have a weekly AR (accounts receivable) meeting with the key people in your business involved in collecting cash. Assign them the task of calling your past-due customers to get a commitment for payment. If they are unsuccessful in getting payment you may need to get involved by calling your customer directly.

Remember, this is YOUR money for providing your products and services, don’t allow yourself to become the bank by accepting late-paying customers!

Of course, don’t compound the problem by continuing to sell to your past-due customers until they have brought their account current. And even then I would suggest that they provide you with a deposit on all future orders. 

"To your health, wealth and happiness, I'm the Cash Flow Doctor, and I make house calls"

Doc 

p.s.- There are a lot of other little things that you can do to bring your receivables current but we’ll talk about them another time.

Taxes, they come in different forms but there’s no avoiding them…..940, 941, FUTA, SUTA, Sales, Income, Property, the list seems to go on and on! You can spend hours every week just making sure that all of your tax reports and payments are filed on time (at least is seems that way).

However, carefully planning and accruing your tax obligations in “real-time” will go a long way in minimizing the disruption to your operational cash flow, and possibly a visit from your “friendly” tax authority!

I strongly encourage businesses to set up a secondary (liability) bank account, separate from their operational account, to accrue their tax obligations weekly. If you process payroll weekly you can run a report at the end of the week to determine how much needs to be set aside to pay all of your 941 taxes by the 15th of the following month. Ditto for your FUTA, SUTA, and Sales taxes.

Work with your CPA to determine what, if any, income taxes may be due the following year and pay your projected income tax obligations quarterly. By setting aside the money that you will need to pay all of these taxes you will eliminate the major disruption to your operational cash flow when these taxes are due.

NOTE: make sure to file and pay all of your tax obligations ON TIME to avoid penalties and interest!

"To your health, wealth and happiness, I'm the Cash Flow Doctor, and I make house calls"

Doc

p.s.- properly plan your tax accruals, it is much better for your cash flow to set small amounts aside weekly and avoid the BIG disruption in the future! I can help you set up your strategy to avoid this major problem.

Pricing your products and services is one of the most challenging aspects of your business, get it right and you make a profit, get it wrong……..

The 3 main components of pricing are:

1. COGS (Cost of Goods Sold)- materials, labor, shipping, and other DIRECT costs.

2. Overhead Expense (FIXED costs)- rent, insurance, advertising, admin salaries, etc.

3. Profit- Your Return On Investment

COGS- these are your costs directly associated with the production of your product including materials and labor.  If your accounting system is set up correctly you should be able to track your material costs fairly accurately for each product/order that you produce.  Labor, on the other hand, is a bit more difficult and usually is rarely tracked correctly.  Time studies are helpful to collect the actual time it takes to produce, deliver, and install (if applicable) your product.

Labor burdens (the total cost of your labor) is another area that can cause (incorrect) pricing of your product.  You need to account for the cost of benefits (vacation, holidays, health insurance, workman’s compensation insurance, etc.), FICA, FUTA, and SUTA taxes that the company pays for.  Just because you pay an employee $15 per hour doesn’t mean that they cost you $15 per hour, in all likelihood they are costing you close to $18.50 per hour!  That’s an added expense to you of $7,000 per year!  Multiply that by the number of employees you have and it adds up fast.

Overhead (FIXED)- expenses are difficult to price into your product or service (you can’t do it all on one order), so I suggest the following.  Determine your annual COGS and overhead expenses for the coming year and use a ratio of FIXED/COGS for the overhead cost component of your product.  For example, assume that your annual FIXED expense is $100,000, and based on the sales forecast for the year your COGS is determined to be $200,000.  The ratio ($100,000/$200,000) is 0.5, which means for every $1 in COGS you need to add $.50 to cover your FIXED expense.

PROFIT- something every business needs if they are going to stay in business for the long term! Generally (net) profit margins vary by industry so a little research here is warranted, but in most cases a 5-20% NP margin is within the realm of realty.

To ensure you achieve the correct profit margin use the following formula:

      (COGS + OVERHEAD)/1 – (NP MARGIN)

Once you determine what your pricing level needs to be you need to compare it to the market (and your competitors).  Generally the calculated pricing will be higher than the market price, it is then up to you to decide if you need to raise your prices, cut costs, or increase sales.

I use a pretty sophisticated excel workbook that I have developed and use to help set the pricing for my clients’ products and services, I can help you determine your pricing level too.

"To your health, wealth and happiness, I'm the Cash Flow Doctor, and I make house calls"

Doc