powerpoint - 7 easy steps to cash flow success · 7 steps to cash flow success 1. understanding why...
TRANSCRIPT
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7 EASY STEPS TO CASH FLOW SUCCESS
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Denyse Whillier
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CHECK
• Workbook • Cash flow forecast • Price calculator
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CONTENTS
• Threesimplestepsyoucantakerightnowtoincreaseprofitswithoutspendingafortuneonmarke8ng.
• Thesupersimpleformulathatwillensureyoupriceyourproductsforprofit.
• Thekeyfinancialmetricsyoushouldwatchlikeahawk• Howyoucaneliminatefinancialstress,experiencedby45%ofbusinessowners,onceandforall.
• Whatyoucandotoputyouincontrolofyourcashflow.
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TWO QUICK POLLS
• Tick ‘yes’ or ‘no’ • Have you had to deal with cash flow
problems in your business?
• On a scale of 1-5, with 1 being low and 5 being high, what’s the highest level of financial stress you’ve experienced?
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7 STEPS TO CASH FLOW SUCCESS 1. Understandingwhycashflowisso
important.2. Prepareacashflowforecast.3. Avoidthetopcashburningtraps.4. Priceforprofit.5. Fivewaysyoucanincreaseprofits.6. Manageyourpayableswell.7. Watchyourkeybusinessmetricslikeahawk.
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CASH…
…islikefueltoacar.Ifacarrunsoutofpetrol,itstopsworkingun8lit’srefilled. Cashkeepsthebusinessrunning,andmeanswecanpayallourexpenses.
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CASH IS NOT…
…. The same as profit.
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9 REASONS WHY…
… Cash is not the same as profit.
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CASH…
…Really is King!
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A CASH FLOW FORECAST
Islikethepetrolgaugeonyourcar.
Itwilltellyouexactlyhowfaryourbusinesscantravelbeforeitneedstofillupagain
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EXAMPLE 1 January February March
BeginningCash £10,000 £6,000 £5,000
CashIn £3,000 £4,000 £10,000
CashOut £7,000 £5,000 £5,000
EndingCash £6,000 £5,000 £10,000
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EXAMPLE 2 January February March
BeginningCash £10,000 £6,000 £1,000
CashIn £3,000 £0 £0
CashOut £7,000 £5,000 £5,000
EndingCash £6,000 £1,000 -£4,000
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2 GOOD RULES OF THUMB
• Unlessyoursisacashbusiness,assumeatleasta30-day8melagbetweenwhensalesarebookedasnetrevenueonyourP&Lreportandwhenthesesalesconvertintocashonyourcashflowforecast.
• Assumethatonly90%ofrevenueloggedonyourP&Lreportwillconvertto‘cashin.’
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GAS GUZZLERS TO AVOID
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ANOTHER RULE OF THUMB
Fixedexpensesshouldbekeptat20%ofnetrevenueandvariablecostsaroundthesame
level.Thiswilldependontheindustryyou’reinandhowlongyou’vebeenopera8ng.
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YOUR MANTRA FOR TODAY
• COGS plus 45% • COGS plus 45% • COGS plus 45% • COGS plus 45% • COGS plus 45% • COGS plus 45% • COGS plus 45%
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THE 5 LEVERS
1. Leads:Thetotalnumberofpeoplewhohavecontactedorwhohavebeencontactedbythebusinessoverthecourseofayear.
2. Conversionrate:Thepercentageofpeoplewhoactuallymakeapurchase.
3. Averagevalueofasale:Theaverageamountpersale,es8matedoverthecourseofayear.
4. AveragenumberoftransacEons:Thenumberofpurchasestheaveragecustomerwillmakeoverthecourseofayear.
5. Profitmargin:Theprofitpercentageofeachandeverysale.
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THE MATHS BIT!
LeadsxConversionRate=Customers
CustomersxAverageValueOfEachSalexNumberofTransac8ons=Revenue
RevenuexProfitMargin=Profit
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WITH SOME REAL NUMBERS
4,000leadsx50%conversionrate=2000Customers
2000customersx£50averagevalueofasalex2
transac8onsayear=£200,000inrevenue
£200,000revenuex40%grossprofitmargin=£80,000Profit
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NOW IMPROVE BY 10%
4,400x55%=2420Customers
2420x£55x2.2=£292,820Revenue
£292,820x44%=£128,840.80Profit
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GET ORGANISED
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WATCH LIKE A HAWK
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WEEKLY
• Numberofnewleads• Numberofnewcustomers• Conversionrate-%• Totalsales• ‘Cashending’• Totalmoneyowedtothebusiness
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MONTHLY
• COGS• Grossprofitmargin-%• Netprofitmargin-%• %ofmarke8ngspend• Costofacquiringacustomer• Theaverageamountof8meittakesforacustomertopaytheirbill
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ACTIONS • Whichothermetricsshouldyoutocheck(a)weeklyand(b)monthly?• Establishabaselineforthesekeymetricsnow.• Prepareacashflowforecastforthenext12months.• Schedulea8meeverymonthtoreviewandupdateyourcashflow
forecast.(Weeklyifnecessary).• CheckyourBalanceSheetweekly.• CheckthatyourpricingatleastmeetstheCOGSplus45%hurdle.• Setanimprovementtargetandac8vatethe5levers.• Reviewyourfinancialmanagementsystemsandimplementanynecessary
changes.