by Dr Greg Chapman
So you have a ‘Cashflow Problem’ and you want to fix it, but first we need to ask a question. What is the cause of the problem? You see a ‘Cashflow Problem’ is just a business symptom and we need to diagnose the cause before we can treat it. If left untreated, it turns into accumulated debt, a rather more advanced symptom.
There are two basic causes:
1. Insufficient sales
2. Margins too small to cover costs
In the first case, the margins may be ok, if only you were able to make sufficient sales, but why aren’t you making sufficient sales? Is it that:
1. Your marketing is not generating enough enquiries
2. Your marketing is not generating the right kind of enquiries
3. You can’t find the right market for your products
4. You are getting sufficient number of enquiries, but can’t turn them into sales
5. Your offer has insufficient market appeal
I define marketing as:
“Finding and Attracting people who want to buy, what you want to sell at the price you want to charge.” If anyone of these five factors is not working for you, the result will be a ‘Cashflow Problem’. Each one of these has a different solution.
The second basic reason for ‘Cashflow Problems’ is that margins are too small. In this case, no amount of sales will fix the problem. In fact, when you properly allocate overheads, you may be making a loss with every sale. Thus with every sale, you dig the hole you are in a little deeper.
The two factors that combine to produce your margins are, of course, Price and Cost. I have literally written the book on pricing strategy which contains 57 ways to increase your prices without losing sales. You can listen to an interview with me on pricing strategy here. Ways to reduce costs include productivity tools (hardware and software), training, systems and outsourcing.
So when you say you have a cashflow problem, it could have many causes, and a good strategy would be to analyse your business to uncover the ultimate cause. It’s likely that there will be multiple causes, each one of these becoming an improvement opportunity.
The Small Business Success Club provides a complete and an easily affordable toolkit which enables you to uncover the root causes of your ‘Cashflow Problem’ and come up with your own solutions if yours is a new or young business, or alternatively request a Complimentary Business Evaluation from me and we can diagnose the problem together.
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Dr Greg Chapman is the Director of Empower Business Solutions and is Australia's Lea ding Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success and Price: How You Can Charge More Without Losing Sales.
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