Last week I spoke about the importance of time and how the lack of it affects owners / managers, both in work and their personal life. Today I will look at the 2nd biggest problem for companies in Wales in 2017 – cash-flow.
All organisations are in business to make money. Even not for profit organisations need to make sure they have enough money to fund the activities they must deliver throughout the year. As such, generating income and effectively managing your cash flow is critical to every business.
I am always surprised by the number of organisations I visit who mistake income for good business. It is only good income if it covers all your operating costs, this includes raw materials, overheads, delivery costs and most importantly any labour for working in the business…including your time!
The single biggest cause of poor cash flow is not having accurate product / service costs. We have spent a lot of time developing accurate costings for companies, so they know exactly where every penny is spent and how this must be recouped through each and every product / service they sell. A favourite example of mine is a restaurant we worked with a few years ago who had a full house almost every night, but when they came to pay their bills they were struggling to find the money. The reason being was because the prices they charged were only covering the cost of the food they bought, plus ‘a little profit’. In reality, they were not covering all their overheads. This manifested itself with a full house every night, and no money in the till… but then what would you expect when you are effectively paying each person £5 to eat at your restaurant! I am pleased to say we fixed this quickly and they are still in business today.
So having confidence in your prices and knowing there is sufficient margin there to generate enough income to pay your staff and suppliers is critical. However, it can be a daunting step when faced with a decision to increase prices. But the fact is, if you don’t do it, you are just delaying the inevitable.
I will be back next week with part three – Recruitment.