It’s said, “Cash is King.” We all know that cash flow strategy is critical! At Miick, cash management strategies are “king.”
Cash flow is the combination and “flow of” money coming in through revenue-generating mechanisms and the money flowing out to pay bills, staff and your own salary.
Rudy Miick, as a business growth coach points out, “The great majority of small businesses, certainly in the restaurant industry, live on cash flow, not profit. Sad but true. Here comes the pandemic and hard lessons are learned fast, you find cash flow cut by two thirds or more, over-night. Maybe there’s enough cash reserve to last two weeks, maybe a month. There is no war chest, there’s no additional bank account. And for many if not most, there is little to no profit. For most small and mid-sized businesses, the habit is only cash flow. In crisis, cash flow is not enough.
Here are three tips about cash flow strategy:
Overview:
There’s got to be profit. Sad but true, the restaurant industry, as a model, alludes to sales and unit growth as the leading indicator of success, as a “hot trend.” This is a great story until it’s not, and it’s certainly not great modeling for start-ups.
To build a war chest requires being able to set aside money. This can only be done from profit and cash management strategy of cash flow.
Tips/Action steps:
One-
The first key to profit is discipline. As Rudy puts it, “Have and use a cash flow analysis. That is, you and I need to know more than how much money we have in the bank today. Know how much we need on any given day over the next 90 days. This is first. Discipline is key to manage cash. So many independent operators pull money out of the till every day and run to the bank or just throw it under a proverbial mattress. There is an alternative. We can actually help actually support leaders to track and to manage their cash flow and get to profit.
Two-
The system you can have in place lets you know what you have and what you need going forward. This includes money in the bank, expected revenues based on data, the “right” inventory, any major payment, insurance, equipment, taxes and licenses, payroll, consultants, repairs and replacement. I can improve the business’s cash management and profitability by tracking when and where cash is low and where it’s high. When we know this aspect of “flow” then we can work on skills to improve the cash flow where it is low and even more when and where it’s high. Helping a company understand these metrics is one of the things that sets Miick apart as a cash flow and profitability consultant.
Systems and Discipline are key to use cash for what you need it for, not spend it in the moment.” Leadership behavior drives culture and culture drives your brand. Discipline, or the lack there-of is an example of Culture. Miick’s experience, as a business growth coach, is this: The more clearly your business is grounded in purpose and values, one value being “fiscal health,” likely the better cash management you’ll have. Understanding what your business brings to all stakeholders, not just shareholders, keeps focus on long-term rewards and maintains the discipline to get to step three.
Three-
Rudy explains, “Third is the set aside of cash (out of profits) so there’s money to put into a war chest for later – the proverbial rainy day. A war chest or working capital allows for replacement, for repair and maintenance to make sure that the company or the car or camera or the computer keeps working, because that’s where I make my money. This also allows each of us to grow without overextending.”
The keys to cash management strategy, that is, effective cash management and celebrating profit are straightforward. 1) Understand and track the real metrics of your business; do this daily, accrued to the week and period. 2) Exercise the discipline to use the money on what is necessary. 3) Use steps 1 and 2 to enjoy profit that allows you a set aside for unexpected downturn, future growth and tangible next steps.
