They say that  Cash is king. No wait … change that … cash flow is king. No matter what your situation, your place in life and no matter what financial obstacles you may face – if you have cash flow, you have hope. And regardless, asking how a business mentor can help cash flow is an important question.

And, if you have hope you then have a future. But I’m getting a little ahead of myself here. Most people don’t ever even think of cash flow. 

People who are in business have extra challenges with cash flow. In my experience, many businesses go broke, not because they don’t have enough customers but because they mismanage their inflows with their outflows. 

Research backs up my observations: managing the businesses finances is a key reason for bankruptcy.

And that’s not surprising, especially if you are new to being in business.  Your focus is on satisfying your customers, handling logistics, or any of a hundred other things.  As an experienced business mentor, let me tell you now – you need to be thinking day and night about cash flow.

How a business mentor can help cash flow

The advantage of having an experienced business mentor is that they have faced these problems before.  Here are the steps that I follow with my clients.

Diagnosis

Think of your business as being like a human body. Cash flow is the lifeblood of your business.

Your business bones are how you own and structure your business.  For example, is it a partnership, or a company whose shares are owned by yourself and other investors?  This ownership structure provides the skeleton for you to build your firm. 

The assets of your business are your muscles (aka the Balance Sheet).  These can be tangible items, like computers and desks.  Or they can be intangible, like Intellectual Property or a Patent on something special. The more you work on these, the bigger and stronger they get. And the stronger you are, the more you can achieve. 

But your cash-flow is your business blood. Your cash-flow brings nutrients to both your structure and your muscles. But it’s not enough to just have blood – it has to be moving for it to have any value. (And we have reached the limits of my medical knowledge!)

A business mentor, through looking at your financial records, can diagnose any potential problems.  There could be many reasons.  The most common ones I see are:

• Generous payment terms
• Profit margins that are too low
• Poor planning  

Prescription

Let’s assume that the problem is one of planning. The business has got a strong product and good marketing.  There are plenty of clients and prospects.  It is growing rapidly.  But there is never any money left in the bank.

There is a mismatch between income and expenses that is causing cash flow circulation problems.  A little like putting a tourniquet on your arm  – the pinching stops the blood from flowing.

As a business grows, cash flow timing becomes a very important issue. That is, simply having money available when you need it.  Matching the inflows from sales with the outflows to suppliers, employees and other costs. 

Over a year, a business might have an accounting profit – but during the year the bank account can run dry simply through lack of good cash flow management.

How does this happen?  It’s easier than you might think. 

Here’s one example: Your business makes a lot of sales and gets the money in (great so far!)  You pay some bills, buy some more stock… but don’t set aside anything for your sales tax (GST in Australia, TVA in Switzerland) or company tax.

The problem comes when the taxman shows up and there is no money in the bank. 

Expand your horizons beyond the next week and month and start to take in a time horizon of the next five years. This is exactly what businesses do when they look at cash flow for expanding their operations. 

Managing the timing of cash flow was one of the problems that my client Carl faced.  To help him address this, I developed a cash flow planner.

You can download your own copy (Google Sheet) by clicking here.

Of course, this is just one example. Every small business or start-up is different.  The advantage of having your business mentor to help you manage your cash flow is that you get a personalised diagnosis and prescription.

Implementation

OK great.  You know the problem, you know what to do to fix it.  But how do you implement?

As with most small business issues, doing something is the most critical step.  Let’s take the example above.  After completing the full cash flow budget forecast, we decided that we needed to do this:

• Change payment terms from 30 days to 14 days with an upfront 50% deposit
• Bring in a part-time assistant so that the owner could focus more on marketing
• Reworked his pricing model to increase margins

Together we mapped out a plan for each of these steps and I held him accountable to that timeframe.  The result:  cash flow problems were solved, and the business was stronger and more robust.

Hiring a Business mentor

As you can see, a business mentor can improve cash flow.  Is it time for your business to have one?

If you want to know more about what a business mentor is and how they can work with you, you find a lot of information right here.  

I would love to hear your own story  -what cash flow challenges do you face in your small business?  Would you like to see if I can help you?  You can drop me a line here.