What comes to mind when you think of cash flow?
In my experience, when I talk cash flow with business owners, especially in the coaching or service industries, I usually get one of the 3 following responses:
- The Heightened Stress Response….. That haunted stressed look you know is a result of waking at 3am most mornings, with a panic about bills that are due next week and you don’t know if you have the cash on hand to pay for them.
- The Abdication Response…… When they say “I don’t really worry about that, I leave it to my accountant / book keeper / partner”. But when diving deeper, they haven’t delegated, instead they have abdicated responsibility and don’t proactively manage cash flow. Instead they react to problems.
- The Blank Face Response…... often followed by “oh you mean profit?”.
TRUE CONFESSION: I have had every one of these responses at different times in my business.
If any of these sound like you, you will absolutely love our topic today and my guest Patty Block, who so calmly and methodically makes this topic simple to understand.
Patty and I clarify:
- Exactly what Cash flow is and isn’t,
- How to know if you have a problem, then
- Ways to get control of cash flow in your business (and finally sleep well at night!).
And because Patty and I are both passionate about making it easy for you to take action THIS WEEK, we include actions steps for to implement this week so you’ll feel confident and whipping those finances into shape like a total boss!
You can watch the video, listen to the audio, download from the podcast directory, or read the transcript below.
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3 Ways to Get Control Of Your Cash Flow
Our guest expert, Patty Block helps women in service businesses. In everything, she values relationships above all. So when working with clients, Patty takes a holistic view. She helps them with financial strategies, implementation, pricing, cash flow, talking to their accountant, and different models and plans used to grow their business.
In her work, she finds that a lot of people overlook cash flow because it scares them. Instead, they leave all that to their accountant who usually uses language they don’t really know. If you don’t try to understand and figure out your cash flow, how will you know you have a problem coming up that can compromise your business?
The intention at the end of the day is for you to take control of your finances. Your cash flow will become something you’re calm, happy, and proud of rather than a stressor that sits at the back of your mind all the time.
Let’s start by making the distinction between cash flow and being profitable.
Being profitable means having enough money after paying all your bills that you can reinvest in your business by getting new equipment or hiring another person. Or, you could take it for yourself and live the kind of lifestyle you want! That’s profitable, right?
Cash flow is less about having the money and more about the timing. If you have money in the bank but not the week before you need to process your payroll or pay your vendors, that’s a cash flow problem. It’s about having money when you need it and managing how it flows in and out of your business.
I love this quote from Patty as it is a real reality check.
As business owners, it’s our job to worry about money.
It is YOUR responsibility
You will never stop worrying about money. What you have to do to worry less is to know what to look for, watch out for red flags, identify obstacles, and how you can deal with these things.
Patty finds that the more she teaches her clients about how to handle their cash, they become more relaxed, confident, and the more they can focus on other areas.
It’s actually empowering to accept that responsibility and make it your obsession.
Things that can get in the way from mastering cash flow
Number one thing is Fear. Numbers aren’t your thing. You aren’t good at maths. You don’t understand all the language, the jargon, the accounting. Sometimes we get too busy and gravitate instead to where we’re comfortable.
This is why it’s very helpful to have someone who can help you figure out the ins and outs of money, timing, and how you can change it.
I have Bazza da Bookkeeper for that, who creates cash flow forecasts for me.
Bazza means I can sleep better at night!
Case Study: Patty had a client, let’s call her Sally, who didn’t know what a cash flow issue was even though she was running a successful and profitable business. She had eight employees paid every two weeks so not having the money at the right time kept her up. Her bad credit record meant she couldn’t borrow money to fill these needs, resulting in missing bills and ruining relationships with her vendors.
These were red flags she had a cash-flow problem in her business and if not addressed, her business (and sanity) would always be at risk.
“What happens when you ignore these red flags?”
There are always consequences you have to face. Unsteady revenue results in a tremendous amount of emotional stress and it keeps you from being able to focus on really positive aspects of your business.
Trouble managing your cash flow doesn’t make you a bad business person. It just means this is an area you haven’t paid attention to. You just need to place some procedures around that.
Three main areas that affect cash flow
- Pricing – Working with women business owners, Patty found that women tend to undervalue ourselves and we underprice. There is no rationale. A lot of us say that we price within what the market can bear but the truth is, no one really knows that. Each market is different. Price appropriately and the right customers will come to you.If you need help with this, check out The Attract Your Tribe program. An important module in this program “Package For Profit” includes an expense and break-even calculator for determining pricing and sales goals, plus how to package and price your programs.
- Seasons and Cycles
In THE USA (Patty’s home) November and December are slow for service companies because it’s the holidays. People already spent their money, so they’re less likely to invest in the spring. Then it picks up again and drops around summer when the kids are on summer vacation. That’s specific to the US, but the point is that there are patterns and trends you can anticipate when it comes to your cash flow.
In Australia December is also slow and January can be difficult to get people’s attention because us Aussies continue to chill-out in the summer 🙂 One thing that really comes up and bites people are tax payments, so anticipate that as well.
Launch Models Online can also cause cash flow problems A lot of online businesses have a launch model. At launch, there could be a generous amount of money. But take note that the cash you have right now may not last you long enough. You need to be able to foresee when you need to start making more money. Safety nets are also important.
- Profitability – This is the money you have left after paying the bills. This is money you can choose to keep in your business, to take for yourself, etc. The point is for you to have a choice what to do with it. If you’re not profitable, you have no choices.
You need to be able to strike a balance, set expectations, and what you want to achieve in your business. While we all want to grow our companies in a way that would be meaningful to us and those we can help, we also want to make money. If you’re not charging enough, you’re not going to be profitable.
”If your business is always only at break even, what’s the point?”
One thing I love saying is…
A lot of people want a million-dollar business, but how much of that is actually going into your pocket so you can have the lifestyle you want? There are people with businesses that have a much lower revenue but higher take-home. Think about that when growing your business.
Three Ways To Get Control of Your Cash Flow THIS WEEK
You need to be serious about invoices, when you expect payment, and then having a collections process. Invoices should always be accurate and sent to the right place or email address. The goal is to get paid as quickly as possible in full.
One of Patty’s clients implemented “Collections Monday”. Monday because you want them to start the week with you in mind. Why? If you call them on a Friday afternoon, chances are they aren’t going to take action.
Every Monday, the client printed out a report of who owed her money and started sending friendly, proactive emails. She then followed up 10 days after the invoice, 20 days, and 30 days after. After a few months, they found that they no longer have to make calls. Her clients have been trained to pay on time because they know you’re paying attention. A lot of clients think “Well, they haven’t invoiced me”.
Now, they don’t have an excuse! I love this idea and now, challenge you to implement what I now do in my business: MONEY MONDAYS
Pay the money you owe as slowly as possible without damaging relationships
You aren’t not paying them. You just pay them on a schedule. Prioritize what needs to be paid first. As an employer, you will want to prioritize paying your employees and contractors. Take a look at your cash flow and determine when you can pay your bills and set a schedule for it. In my experience (and Patty’s) a lot of women want to pay bills as quickly as possible because they pride themselves in paying immediately and on time. Many think that paying late would have people regard them as irresponsible. But you ARE being responsible, to yourself.
Be very wise and conservative in your use of cash
Collect it quickly, spend it slowly, and determine what’s need-to-have and want-to-have. If you need to hire or contract work, or upgrade to new equipment, prioritize expenses for that and fit it into a cash flow analysis. There’s a tool that Patty uses for her clients that helps them monitor their cash. By looking at it that way, you can make very wise decisions on how you use your cash.
I get Bazza da Bookkeeper to use a simple spreadsheet to forecast cashflow. It doesn’t need to be rocket science.
Part of understanding the cash cycle is having a good handle on this cash in and out. It gives you confidence and allows you to make good decisions without playing the guessing game.
A Gift From Patty
Patty has an ebook that you can download on her site, theblockgroup.net.
The ebook helps you look at three main areas: finance, operations, and planning. It guides you as you analyze what’s working in your company, some of the early-warning signs, how to address growing issues, and provides you with a framework so you can understand the sources of stress in your business. She also has a pretty robust blog and you’re more than welcome to use all of the resources available.
I’d love to hear your tips, ah-ha’s and questions. Leave a comment down below.
And if you have a friend who wakes in the early hours, worrying about cash flow, please pass this post to them.
Patty Block, President and Founder of The Block Group, has approached each step in her career with an entrepreneurial spirit: from successfully operating a business as an independent lobbyist and political consultant; to serving as both the Legislative Coordinator and the Charitable Foundation Director for First Interstate Bank of Texas; to adeptly filling multiple leadership roles at The Awty International School, including Director of Operations, Development and External Affairs.
Patty established The Block Group in 2006 to bring together the people, resources and ideas that build results. The Block Group brings a unique perspective to the complex issues that confront women business owners, serving as a trusted advisor with fresh eyes and new ideas — turning roadblocks into building blocks for women-owned businesses.
Clients often refer to Patty as their “business therapist” and “secret weapon” because she forms strong relationships, understands and refines their company’s internal workings, and serves as a strategic sounding board. Clients find working with Patty enjoyable, inspiring and enlightening, and they experience direct benefits on a daily basis.
Read The Transcript Here
Janet Beckers: Hello, everybody. Janet Beckers here, and it’s great to welcome you today because we’re going to be talking about a topic that every single business owner at some stage will wake up in the middle of the night thinking about. And in fact, it’s something that is present all the time, and it is the one thing that can absolutely kill a business even if it is a multi, multi-million dollar business. It is the one thing that can kill a huge business, and it can kill a startup.
So we’re going to be talking about cash flow, and it’s also the one thing that a lot of people, as soon as you say that word, they’ll go and hide and they don’t want to talk about it. So I’ve got a really wonderful guest with me today who has a beautiful, systematic way of being able to help you to take control over this and in a lovely, kind of methodical way so that you will have some action points that you can do straight away in your business this week. So wonderful to welcome you here, Patty.
Patty Block: Thank you. I’m delighted to join you.
Janet Beckers: Yeah. So Patty and I were introduced to each other through a beautiful friend of mine, Kathy Goughenour, who also has been a guest here on Romance Your Tribe Radio in one of our episodes talking about virtual assistants and also about how she was able to sell tickets to a pajama party for up to $1,000 each. So Kathy, when I was talking to Kathy, she said, “You have got to meet Patty. I just absolutely love this woman, and I know that your subscribers, your listeners, are absolutely going to love her too.” So it’s great to welcome you.
So Patty, I’m going to just hand over to you to just talk about yourself, so can you share with us who it is that you serve and how is it that you do that?
Patty Block: Yes. And thank you for the opportunity. So I work with women business owners in service companies. So I work with a lot of law firms, CPA firms that are woman-owned and operated, lots of consulting firms. They all offer service. I have several in the elder care industry, which is booming. And the way I met Kathy, our mutual friend, is because I’ve expanded my company across the United States and really have no geographic restrictions, so I can work with companies all over the world. And that was part of my goal was I’m very passionate about especially helping women entrepreneurs and wanting to expand my reach.
So I was introduced to Kathy as I expanded my company nationwide. I’m based in Houston, Texas, which if you ever get an opportunity to come visit Houston, it’s a great city. It’s the biggest small town in America and offers a lot of opportunity and a very warm, welcoming business community.
Janet Beckers: That’s a lovely, lovely way to put it. And as an aside, for people who are listening or watching or reading, is even though today we’re going to be talking about cash flow, I just wanted to point out something to you because one of the big ways that I help my clients to build their business is really focusing on relationships, really focusing on the relationships that are with your clients, with your potential clients, but also with people who are in your industry or people who you can see that can help you to be able to expand your reach, and how to do that in a way that people really, really happily introduce you.
And so Patty is a fantastic example of somebody who has done that really, really well. Because Patty was introduced to me by somebody who I know, and now I’m introducing her to you in a way that I’m really, really happy to do. And that all started because Patty very strategically decided that she was going to expand her business, and she was going to focus geographic area by geographic area and actually systematically looked at relationships.
So I want to congratulate Patty because she’s done something in a really classy way, in a very professional way that has opened up doors but also built relationships. And so I’d like you to watch what Patty’s doing as well because here is an example of somebody who does the stuff that I’m really passionate about helping people do. She’s done it really, really well. So I just want to acknowledge that, Patty.
So today. Today, when I was talking with Patty about all the different things that she does to help people, we were talking about what were the big things that really impacted the people who I worked with, and especially because you work with service-based businesses and primarily … I primarily work with women … is that cash flow, a lot of times people will just ignore it because it’s just, “You know what? It scares me.” And it’s not uncommon to have that up and down. So we thought what we would talk about today is why do you get into the problems with the cash flow, and how do you know that you’ve got a problem coming up that can actually wipe your whole business out or, at the very least, stop you sleeping at night?
So we’re going to look at those things. And then, importantly, we’re going to spend the bulk of our time today talking about the stuff that you can take control of. So we’re going to look at the three core areas that you need to focus on in order to be able to sleep at night, and I’ve asked Patty to leave us with some really good action points that you can do this week. So our intention at the end of today is that you are just going to crack out that whip, baby. You’re going to take control of these finances. Your cash flow is going to be something that you are calm and happy and proud of rather than it being that awful stressor that sits there at the back of your mind all the time.
So let’s get stuck into it, Patty.
Patty Block: Wonderful. And thank you for the shout out about how I’ve expanded my business. I will tell you it’s been the best business decision I’ve made. And having several different strategies that I’m putting into place, it is fun and interesting, and I’m meeting the most wonderful people, including you.
Janet Beckers: That’s great. Yeah. Yeah, that’s fantastic. Yep, so to all of my clients that I’m teaching these techniques to, you see? It works.
Patty Block: It definitely works.
Janet Beckers: Yeah. Yeah. So let’s get started in with “Why the cash flow?” Over to you, Patty, about talking about … let’s, first of all, just work out why is this a problem, and how do people recognize if they actually do have a problem or not?
Patty Block: Okay. I’m going to start with making a distinction between cash flow and being profitable.
Janet Beckers: Yeah.
Patty Block: Those are two different things. And one of the problems is when you are working with an accountant, which is very necessary because you want to be in compliance, but the problem is that they have their own language. And a lot of times business owners don’t necessarily understand what their accountants are telling them, or if they do, they might not know what questions to ask. So sometimes I serve as a kind of interpreter for my clients. So let me make that distinction. Being profitable means that you have money at the end of every week or the end of every month that you can reinvest in your company, or you could pay yourself, or you could hire another person, or you could buy a new computer. That’s profitable, right?
But cash flow is different. You mentioned, Janet, the ups and downs. Well, that’s why we use the word flow because cash flows in and out of your business. And when I meet with a new client, and I ask them what their priorities are … when I work with a client, it’s a very holistic view, meaning I’m helping them with financial strategies and implementation around pricing, around cash flow, talking to their accountant. I’m also helping them with all the different aspects of operations from building their hiring and staffing model, use of technology, all the different pieces of that, and then strategic planning and business development and sales. And I’ve developed a series of tools designed for women that I teach them how to go through their business development process and actually close the sale.
So when I ask a new client what their top priorities are, no one ever says cash flow because we don’t think that way. And if you don’t have a good handle on your cash flow, there are a host of problems that come into play, including emotional stress. But cash flow, what makes it so distinct is that it’s about timing. So even if you have money in the bank, but you don’t have money the week before you need to make payroll, that’s a cash flow problem. It’s not necessarily a money or a profitability problem. It’s a timing problem.
Janet Beckers: Right. That is a great distinction. And you know what? I just can’t believe when you’ve said, Patty, that when you ask people what their top problems are that they don’t mention cash flow. It’s my number one obsession when I talk money in my business is the cash flow and the timing. How fascinating is that?
Patty Block: Yes. And I will tell you that that was surprising to me. I started this company in 2006, and I really expected that people would be asking for help with their cash flow. And it is an expertise that I have, so I was really excited about that. And then nobody considers that a top priority.
Janet Beckers: Wow.
Patty Block: But in my view, that’s the difference between a hobby and a business.
Janet Beckers: Absolutely. Yeah.
Patty Block: A hobby, you don’t worry about cash flow, in a business, you do.
Janet Beckers: There you go. Isn’t it interesting?
Patty Block: So let me share with you a story of a client of mine who had been in corporate America for 22 years and was now coming out and starting a business, and it’s become a global consulting business in the oil and gas industry. And one of our meetings, she was … starting a business can be very overwhelming, and I think that was part of what she was feeling. And so she asked me at the beginning of our meeting, “When can I stop worrying about money?” I said, “It is your job to worry about money.”
It is our jobs as business owners to worry about money and to be knowledgeable and to know what to look for, what are the warning signs, what are some of the things that get in our way, and then how do you deal with those things? And what I found is the more I teach my clients how to handle their cash differently, the more relaxed they are, the more confident, and the more they can focus on other areas.
Janet Beckers: You know what? That is … I love that line of, “As business owners, it is our job to worry about money.” Or if not worry about money, to be obsessed about money and to really take that responsibility that that’s what it is as the business owner. I love that. That’s a quotable quote, that one. “It is our job.” Because I know once I came to that reality, what I thought I might have been doing was delegating, but actually what I was doing was abdicating the worry and the responsibility of the money. That once I realized, “You know what? Actually, this is my job. I’m overseeing this,” all of a sudden, it’s empowering. It’s actually empowering to actually accept that responsibility and make it your obsession. So thank you for saying that line. Yeah, I hope that that’s resonated here with a few people who are watching.
Patty Block: Good. And I do mean that in the most positive sense. That is our job is to worry about money. Once you become very knowledgeable and get a good handle on what I call the cash cycle, it really does become easier. So let’s talk for a minute about things that get in the way. So you mentioned fear.
Janet Beckers: Yeah.
Patty Block: That’s a big one. So if you grew up, and in school you were told that numbers aren’t your thing, and you’re not very good in math. Or maybe you don’t understand all the language, the jargon, around accounting. That can be very intimidating. And really what we’re talking about are the dollars coming in and the dollars going out and the timing of that, and that is your cash cycle.
So some of the things that get in the way is the owner’s fear of learning, dealing with that, and trying to get a handle on it, but there are other issues that get in the way too. Sometimes we get so busy, and we tend to gravitate to where we’re comfortable. So if you’re really comfortable with marketing and sales, you’d much rather spend your time there-
Janet Beckers: Absolutely. Yeah.
Patty Block: Than figuring out your cash cycle. And so sometimes it’s very helpful to have an adviser or an accountant or someone who can help you figure out the ins and outs of the money, the timing of that, and how you can change it. And I’m going to share with you today some tips on things you could change today.
Janet Beckers: Excellent. Excellent. And you know what, I could resonate with both of those, and especially the one that you’ve got to do with when you get busy, that this can be the thing that you tend to ignore, and you can’t do it. That’s when it comes back and bites you on the bum. So it’ll be really interesting to hear your tips because I recognize that a while ago that that was something that had a real risk of happening. And so I did exactly what you’ve said, and I’ve got Bazza the bookkeeper, who is actually acts as my CFO, my chief financial officer. So he’s more than a bookkeeper, so he manages all my cash flow, all of … we have our meetings, and when he really asks me the hard questions because it’s so important that you need somebody there who’s keeping an eye on it. Yeah. Yeah. And I thank the world for Bazza every day.
Well, let’s do that. Let’s go into what people can be doing, those really good tips people can be focusing on so that you too are in control, baby. So over to you, Patty.
Patty Block: Wonderful. So let me share with you one of my clients, we’ll call her Sally, when we started working together, she didn’t even know what a cash flow issue was. She had some of the warning signs. She was struggling to pay some of her bills. She was losing sleep over payroll. She had about eight employees, and they were paid every two weeks, so you could tell the interruption of her sleep cycle based on when payroll was due. And it wasn’t that she didn’t have the cash, but she sure did worry about that.
So there was a lot of early warning signs, and those were some of the things I could point out to her to say, “These are the red flags that are saying to me, ‘We need to analyze this and fix this.'” So for example, one of the things that you can do when you know what your cash cycle is, and you are a profitable company, you get to reinvest in your company. And you can make informed decisions like hiring an additional person, or buying that computer that you’ve been eyeing, or figuring out the strategic ways you want your company to grow.
So she had some red flags like sometimes struggling to pay bills and delaying them, which would then hurt her relationships with her vendors. Things like worrying so much and losing sleep over making payroll. She was embarrassed to admit that she didn’t understand that cycle and why the money wasn’t there when she needed it. She couldn’t borrow funds. The bank wouldn’t lend to her because her credit rating wasn’t that great and because she struggled with having money in the bank. So there were a lot of warning signs that I could identify.
At that point, we started talking about, “So what happens if you ignore this?” Because there are always consequences from the decisions you make and the decisions you choose not to make and, of course, not making a decision is making a decision.
Janet Beckers: Making a decision. Yeah.
Patty Block: Exactly. So that is what I see most commonly is people avoid the issue. They’re afraid, they’re intimidated, they’re embarrassed, and so they choose to avoid it.
So when we think about what happens with if you ignore the warning signs, you have unsteady revenue, you have a tremendous amount of emotional stress, and it keeps you from being able to focus on really positive aspects of your business like growing it or, in my case, expanding it. I had to be in a very, and am, in a very solid position to be able to focus my attention in other cities, other jurisdictions, and with a broader range of my audience.
Janet Beckers: I’m just thinking … so the thing that you’ve said, Patty, the example that you gave of your client is you would go, “Oh, well, you know …” if she’s having that problem where she’s getting that stress around coming up to time every fortnight when she’s got to pay her salaries, you would go, “Oh, well she’s actually not running the business that well. She’s not that switched on.” But the reality is this is a woman who has a business that is profitable enough that she pays eight employees, so that is a good business. That’s a well-run business if she is still paying those employees. So she must be getting good revenue coming through, and she’s got people who are staying with her, and so it’s a good, growing, positive business.
So it just goes to show that even if you’re looking at something and going, “Well, you know, this is somebody who’s switched on. They’ve really got their act together with their business,” that there is still this huge risk and that incredible stress. So that was a really great example to give because it’s demonstrating that if you’re not managing your cash flow, you’re having problems with it, it’s not necessarily a reflection that you are not a good business person. It just means that this is an area that you haven’t identified that you need some procedures around that.
Patty Block: That is an excellent point and spot on. And this is a company that has been in business for about eight years. They’re very successful. They’ve got money coming in. Again, it’s not a dollar problem, it’s a timing problem. And it’s fixable.
Janet Beckers: Right.
Patty Block: So you’re absolutely right. She’s a very savvy, smart business woman. But she’s also very, very busy and finds it hard to focus on the cash flow and the financial reports and the bookkeeping because it doesn’t interest her as much as the fun part of the business, which is providing the service and bringing in new clients.
Janet Beckers: Yeah. So should we look at what we could do about that, or is there something else you wanted to cover first?
Patty Block: No. Let me share with you, there are three main areas that I focus on first when I’m looking at the financial piece of any company. I always start by looking at the pricing because that’s the linchpin of everything. And what I find, as women, we tend to undervalue ourselves and we under price. And it’s universal. I’ve never met a woman business owner that I think is pricing appropriately.
Janet Beckers: Really?
Patty Block: So that is the first thing-
Janet Beckers: How interesting.
Patty Block: Yes. That’s the first thing I do is we start with looking at … we do an analysis of their pricing. What I find is that there often is no rationale. They have a sense of what they think the market can bear, which doesn’t even make sense to me because no one knows what the market can bear or even what the market is for that matter. And now we live in such a global community that it’s different in different areas of the world. So I happen to live in the United States in Texas. Our economy is booming in this particular state. In other states in the country, it’s not as vibrant as it is here in Texas, largely because of the oil and gas industry here. So pricing is a linchpin for everything.
The other thing that we spend quite a bit of time working on is the cash flow model, the analysis of that, so we can get a good handle, understand their cash cycle, and they can start to anticipate. So I’ll give you an example. With service companies, a lot of service companies have cycles according to the time of year. So here in the United States after November and December … because we have Thanksgiving and Christmas close together … because of that, the first quarter of every new year is often low in sales for a service company.
Janet Beckers: Right. Because people are spending their money on things-
Patty Block: Well, they’ve already spent their money.
Janet Beckers: Or food or entertainment.
Patty Block: Yes. They’ve already spent their money in the fall, and so come the spring, they’re less likely to invest in services. Then it picks up, and then we see another dip often in the summer because families are traveling and the kids are out of school. So it’s specific to the United States and to our school system and to our holidays. But it’s a pattern and a trend, and we can start to anticipate that. And you can plan your cash so that you are taking into account your tax liabilities at the same time as you’re planning for a potential low spot in your cash.
Janet Beckers: And actually, that’s the one that actually comes up and bites people a lot is the tax. In Australia, every quarter we have to pay what’s called our BAS, so it’s our … it’s how businesses collect tax for the government, basically. And that can be a surprise for a lot of people because they haven’t really taken into account that they have to pay a few thousand dollars if they have spent less that month than they have actually earned, and so that’s another cycle thing.
And just when you were talking about those cycles, I was also thinking about … because we have service-based industries, and we also have a lot of the people that I work with, because they will have an online business model, they might be using different ways of [inaudible 00:24:55] marketing that. So one of them may be using a launch model which will mean that you may do a lot of lead up to doing a launch which means that it’s very difficult for you to also be selling a lot because you might be focused on preparation, getting everything ready for marketing, so there can be a dip.
And then there can be, hopefully, this beautiful chunk of money that will come through from having done the launch, and a lot of people will be on a payment plan for that. And so it’s very easy for people after they’ve had a launch and brought in a lump sum of money to kind of relax and go, “Ah. I’ve got so much cash. This is just fantastic.” But the reality is that it’s only going to last you for a certain amount of time, and the people who are on payment plans, it may finish in four months, six months. So I do see that that can be a really big problem for people that may have an incredibly successful launch, but their business can get in a lot of trouble six months down the track-
Patty Block: That’s right.
Janet Beckers: Because of that. Yeah.
Patty Block: That’s right. Well, and in the United States, one of the issues we have is that a lot of accountants recommend to their clients that they use up their cash before the end of the year because it lowers their tax liability, and that’s because of the corporate structure and the way most of the companies here are organized. That is a very good tax strategy, but it is not a very good strategy when you go into the first quarter of the year with no money and then you have a dip in sales.
Janet Beckers: Yep. Good point.
Patty Block: So there has to be a balance of having some safety net, whether it’s line of credit or whether it’s money on which you’re going to pay tax, but you only pay it once, and then you keep that as your nest egg. So there are many different ways that you can have a safety net, but you must have a safety net.
Janet Beckers: Yeah. That’s a good call. And so that was number two. So number one was …
Patty Block: Pricing.
Janet Beckers: Pricing. Yep. Number one was pricing. The second one is looking at the seasons and the cycle that you have within your distinct business. So what’s number three?
Patty Block: Profitability.
Janet Beckers: Right.
Patty Block: And so as we mentioned at the beginning, profitability is about the money that you have left at the end of every month after you’ve paid your bills. And that’s money that you can choose to keep in your business, you can choose to invest it in your business, you can choose to take it for yourself, so you have choices. And if you are not a profitable company, you have no choices.
And again, this is about balance, about what you expect from your company, what your goals are, what you want to achieve with what you’re doing. And for everyone in business, part of our goal is to make money. It’s certainly not the only goal, but we want to make money, we want to be self-sufficient, we want to be able to grow our companies in the way that’s meaningful for us, and in many cases, we want to hire staff to help us. And so being profitable allows you to do that, and that’s about managing your money and, again, goes back to pricing. If you’re not charging enough, you’re not going to be profitable.
And so to give you an example, I worked with a company that had about $16 million in annual sales, and they broke even. They were not a profitable company.
Janet Beckers: Wow.
Patty Block: And that’s a lot of money in sales, and yet, that’s what they were spending every year as well.
Janet Beckers: Wow.
Patty Block: So they were a break-even company, so you have to … well, I have to ask the question, “What’s the point?”
Janet Beckers: Absolutely.
Patty Block: “Why are you working so hard if there’s no profit to show for that?”
Janet Beckers: Yeah. You know what? That brings back to a quote that I have actually, for a good year or so, I actually had it written on my computer. It was a girlfriend of mine that had told it to me which was, “Revenue is vanity. Profit is sanity.”
Patty Block: Ooh. That’s a good one.
Janet Beckers: So I just live by that one because a lot of times people will be going, “I’m going to have a million dollar business.” And I go, “Well, that means nothing if it’s a million dollar revenue. How much of that is actually going to be going into your pocket so you can have your lifestyle?” Because you can have a business with a much lower revenue, but you can be having a much higher take-home that you can actually get to use to fund the lifestyle that you want.
Patty Block: Exactly.
Janet Beckers: So that’s a great example, 16 million and just breaking even.
Patty Block: Right.
Janet Beckers: Ouch.
Patty Block: Yes. So let me give you some strategies-
Janet Beckers: Yeah, great.
Patty Block: That you can use… you could start using today.
Janet Beckers: Excellent.
Patty Block: There are three keys. Once you recognize and understand your cash cycle, and you recognize any red flags there might be, or things that are causing problems, once you do that, there are three things you can do that will improve your cash flow. The first is collect money that’s owed to you as fast as possible.
Janet Beckers: Yes. Great one.
Patty Block: It seems like common sense, right?
Janet Beckers: Yep.
Patty Block: I mean, it is common sense. And yet, I cannot tell you how many companies do not have a collections process. So they send out invoices, right?
Janet Beckers: Yes.
Patty Block: They send out invoices, but they don’t have a collections process. So they just kind of … it’s on a wing and a prayer they hope they get paid.
Janet Beckers: Absolutely. And even … not even sending out the invoices. My graphic designer, who I absolutely adore, a very small, small business … and as soon as I … if it’s a small business, we pay them as quickly as we can, but she can take months to invoice me for work. And I know she’s doing it for all of her clients, and yeah, so I will actually message her going, “Invoice me.”
Patty Block: That’s exactly right. So getting on an invoicing schedule … making sure your invoices are accurate, that they’re sent to the right place, the right email address, or if you’re mailing them … because, of course, the people who owe you money want to take as long as possible because that’s good for their cash flow.
Janet Beckers: Absolutely. Yeah.
Patty Block: So you need to be serious about sending invoices and about expecting payment when you’ve told them you expect it, and then having a collections process. So one of my clients, we started “Collections Monday,” and my feeling was she needed to put some structure around it so it was scheduled. And I will say that when the owner of the company contacts a client, they sit up and take notice.
Janet Beckers: Yeah.
Patty Block: So it’s okay if you delegate it to a bookkeeper or a CFO or someone else in your company, but they may not get action as quickly as you will if the owner of the company contacts the client. So that’s something to think about because the goal is to get paid on time as quickly as you can in full. So make sure your invoices are accurate, sent to the right person, and sent immediately.
Janet Beckers: Good.
Patty Block: So we do “Collections Monday,” and every Monday she would print a report of who owed her money, and she would start sending emails, very friendly, very proactive, emails. She didn’t wait until the money was due. We started 10 days after the invoice was sent, and then we did it 20 days and 30 days. Well, after a couple months of doing that, we didn’t have to make any calls 30 days later because what you’re doing is you’re training your clients to pay you and that you’re paying attention.
Janet Beckers: Honestly, that can be the one thing that makes a huge difference for a lot of businesses. I know it from just being on the other end of the person that’s going, “Well, they haven’t invoiced me. We can wait.”
Patty Block: That’s right.
Janet Beckers: Yeah, yeah.
Patty Block: That’s right.
Janet Beckers: That’s a brilliant one.
Patty Block: So that is something that you could put into place today, and you might call it “Collections Monday.” The reason we chose Monday is because we wanted to start the week with that in mind. That was top of mind.
Janet Beckers: I love it.
Patty Block: And it’s also a good way to catch your clients at the beginning of a week when they’re fresh from the weekend, and they’re ready to refocus. If you call somebody Friday afternoon, chances are they’re not going to take action.
Janet Beckers: Yeah, that’s a really good point. And can I just change it to … I love alliteration. So can we make it for everybody that’s here, I want you to let us know, let Patty and I know, are you having “Money Mondays”? That’s what I want to … We’ll have “Money Mondays.” I like the idea of that.
Patty Block: Excellent. I love it. That’s great. So the second key is to pay money to your vendors as slowly as possible without damaging your relationships. So I’ve seen many companies that pay bills the day they come in, and while I understand the idea behind it, that is not to your benefit. And the reason is because just like you have a priority for your business goals, for the projects you’re working on, there’s always a priority to things. There’s going to be a priority to what needs to be paid first.
For example, you will always pay your employees and your contractors first. Always. Because you don’t want to lose them, right? So keep that in mind. So if you pay bills that come in and pay them the same day, you might not have money left for payroll. So you need to prioritize your expenses and determine when to pay your bills. And I’m not implying that you pay them late, but pay them on a schedule.
Janet Beckers: Yeah. That’s a great point, and that’s what I get … Bazza the bookkeeper does that for me, and a lot of times I’ll be like, “Barry, it’s getting close to the line.” He’s going, “Nope, that’s okay. This is the priority. This one gets done first, this one gets done next.”
Patty Block: Exactly.
Janet Beckers: And a lot of women will want to pay people really, really quickly. They will feel really terrible about the thought that they … and they will take pride in how fast they can pay people. But exactly as you’re saying, Patty, as a business owner, that can actually be really irresponsible. And so that’s the … the third one, what is the third one?
Patty Block: The third one is about your use of cash. So you want to be very wise and conservative in using your cash. So in some ways you’re already doing that because you’re collecting it quickly, and you’re spending it slowly, but you have to determine what’s a need-to-have and what’s a want-to-have. So if you need to have freelancers, or designers, or video editors, then you need to prioritize the expense of that and fit it into a cash flow analysis. And that’s actually a tool that I use with my clients that I developed to help them monitor their cash.
So then when they say to me, “I’d really like to hire an additional person,” we estimate the salary, and I can plug it in to the analysis so we can see not only how that affects cash at the beginning but over time. “Can you really afford to do that?”
Janet Beckers: That’s a really handy tool.
Patty Block: Or what if you need to replace your computer, your monitors, or you need to get a laptop, or you want to set up a video studio, which is something that I did almost two years ago? Again, I wanted to invest in that, and it’s a priority as I was expanding my company, so it was plugging that expense in to see how it would affect cash. So then you could make very wise decisions in how you’re using your cash.
Janet Beckers: That’s brilliant. And I think, again, this is the one thing that I get … when I first started working with my … I call him my CFO because he’s so much more than Bazza the bookkeeper … is I needed to have some kind of tool so that I could see at a glance, and I could just look across in the forecast and go, “Oop, red. Oop, black. Okay, I’ve got to make some sales in this particular point.” And so it then becomes back to your responsibility as a business owner, doesn’t it, that if you know that cash flow, you know that forecast, you can have a look and go, “I’ve got to do something about some kind of promotional event in six weeks time,” which is powerful, rather than, “Ooh, what season is it?”
Patty Block: You know, that’s an excellent point. And the other thing I’ll mention is what if an employee comes to you and asks for a raise? You’ll want to give them a raise. They’re doing a good job, and maybe they deserve a raise, but you don’t know if you can afford it. So that’s a scenario that’s actually very common where then you feel caught off guard. And part of understanding the cash cycle and having a good handle on this cash in and out, it gives you confidence and allows you to make good decisions without playing the guessing game.
Janet Beckers: Yeah. That’s brilliant.
Patty Block: And so it’s really a very important aspect that you really can take action and get good results right away.
Janet Beckers: Yeah. That’s just … this has been so useful. It’s kind of crazy. You would think when it comes to cash flow accounting that that’s a really dry subject, but I get so excited talking about this stuff because even though I’m never going to be the person who is the person doing the bookkeeping because I absolutely hate doing any of that number crunching stuff, but I love the numbers. So with the first person that I ever contracted in my business before we even started making money was a bookkeeper to enter everything in so I knew how much I was losing so I could know when I had broken even and I knew when the money was coming in. It’s really empowering. It’s exciting.
So we’ve got to the end of our time, so just those last three points when it comes down to action, and this is what I want to challenge everybody here that is listening, watching, reading, however you are here, is those three points, which were number one was you send out your invoices and have a collection process. So I’m challenging you to have a “Money Monday” or a “Collections Monday,” but a “Money Monday,” I like the idea of that one, and make it so you have that focus and that you’re contacting people before things are even due, and do not let them go over. And you can do that in a really kind, respectful way.
Number two that you had there was, the opposite side of it is don’t be one of those people that prides yourself on how quickly you pay people. That’s what you do for your girlfriends that you pay them really fast, but when it’s in business, it’s irresponsible. So that was a really good point for you to bring up. So make sure that you’re paying, scheduling wisely. Don’t make people chase you out, but just doing it wisely.
And then that third one about just spending wisely as well. Don’t just see all the money in the bank and go, “Woo hoo. Staff party.” That just spending it wisely and in an informed way is incredibly empowering. If you can do those three things, that would be fantastic. And even better if you can come and share with us because one of the best thank yous that you can give Patty and I for spending our time and sharing this with you is to give us some feedback. So to come either leave a comment on the blog post, send us an email, just tell us what one change that you have made as a result of what Patty shared with you today is incredibly rewarding for both of us.
So for you, Patty, how can people get in contact with you, and any way that you can help them further?
Patty Block: You bet, and I’m always happy to meet new people and to visit with folks, certainly with business owners. So my website is theblockgroup.net, and that’s probably the best way to reach me is theblockgroup.net. And there are many, many free resources on my website. You can also contact me through LinkedIn, and it’s Patty with a Y. So Patty Block with a Y. And there is a downloadable e-book that is free that’s on my website, and you’re welcome to do that, and that also subscribes you to my newsletter list. So there are all kinds of free resources. I have a pretty robust blog, and I welcome you to use all of those resources, that’s what they’re there for.
Janet Beckers: That’s brilliant. And so the e-book, Patty, what’s that focus for people?
Patty Block: So when I’m working with a company, I look at three main areas, which is finance, operations, and planning, and the e-book takes each phase of that, and it helps you analyze what’s working in your company and what might not be-
Janet Beckers: Ah, brilliant.
Patty Block: Some of the early-warning signs, some of the ways that you can address issues that you may have realized are becoming problems, and it provides a framework so that you can understand the sources of stress in your business.
Janet Beckers: Ah, that’s brilliant. That sounds like a really good resource. So we’ll put some links to that on the blog post page where this podcast is, so if you’re over listening to this on iTunes or Google Play, wherever it is that you’re listening, just come over to romanceyourtribe.com, and it should have a link there anyway to this post, and I’ll have links there for you to be able to go and get that from Patty. And I’ll also put a few summary points and some sort of action challenges for you on that post as well so that you can go and take some action.
So thank you so much for your time today, Patty, I really … you can tell that Patty is good at what she does because hasn’t this been a beautiful, very systematic interview where you’ve given really good value in a very systematic way. I can tell that’s the way that you also work with your clients. It’s beautiful. So thank you so much for your time today, and thank you, everybody, for listening, and please, the best thing that you can do for us is take action this week, so that’s my challenge to you, baby. Okay, bye, everybody.
Patty Block: Thank you.