18 Questions to Improve Your Cashflow
To help you
identify the opportunities in your business, go through the
following questions. Make notes on what is relevant to you. Estimate
the benefit in money of taking action on each item that is relevant
to you. Do it now!
Debtors
1. Do you have
an aged debtors report that you look at least weekly?
2. Do you have
a clear policy on how to handle overdue payments, that identifies
clearly who is responsible for collections, and that you implement
consistently?
3. Do you have
a target for DSO’s (days sales outstanding) with a plan on how to
achieve it (or improve it)?
4. Working on
the basis that we tend to get the behaviour that we tolerate (a bit
like with pets, children or MPs really!), how does your behaviour
towards your debtors reinforce their behaviour towards you?
Creditors
5. Are you
consistently able to pay your creditors on the terms agreed?
6. Have you
renegotiated payment terms with all your suppliers within the last
12 months?
Stock
7. Do you know
how much of your money is tied up in each line item of stock that
you hold?
8. Do you have
a plan to reduce your dependence on stock (ie generate more sales
per £000 of stock that you hold)?
Margins
9. How is your
pricing policy helping you to improve your gross margins?
10. When did
you last change your prices?
11. When did
you last renegotiate prices with your suppliers?
12. Where
could you generate an extra 5%or more in gross margin – right now?
Overheads
13 .How often
do you review every overhead cost with the aim of reducing by 10% or
more?
14. What are
your finance costs (loan interest, factoring costs etc) and is there
a need to reduce them?
Sales
15. Are your
sales growing faster than your overheads?
16. Of the
products or services that you sell, do the ones with the highest
growth rate have a higher or lower margin than the average for your
business?
17. Is your
marketing focused on the products /services that will most
effectively generate cash for you?
Have you got a
few notes? Good – if not, go back and write them now.
Wondering why
is sales at the bottom of the list? It’s only because the other
things are pretty much under your control and you can take action on
them quickly. We also want to be sure that extra sales will be
profitable and will generate cash. Don’t ignore opportunities to
make more sales fast from your existing customers though. Just ask
them – after all what’s the worst that could happen?
The sharp-eyed
will have noticed that I promised 18 questions and I’ve only given
you 17. So here’s number 18;
18. What’s the first thing that you are going to do
to improve your cashflow? Just pick one that you can get started on
right now.
OK well done –
but there’s a catch. There’s actually another question and if you
read it I need you to make a decision and to stick to it. If you’re
not prepared to make a decision that you will stick to, then don’t
read the question. By now you’ve taken some sort of view on what the
opportunities are for you to improve your cashflow, and hopefully
you’ve even got an idea of how much money taking action would be
worth to you. You’ve even decided what is the first step to get
started. So here’s the last question.
19. When?
Decide when. Right now, decide when you are going to take action on
your first step. Put it in your diary and hold yourself accountable.