Whilst some small businesses have managed to maintain growth and profitability over the last year, many SMEs are still feeling the effects of one of the worst downturns for decades. A number of our clients who have business coaching have found that their market has changed significantly over the last year and that previously reliable customers and contracts have been cancelled or lost, or that the contracts have become uncertain.
Now, more than at any other time, it is imperative that companies seek to find growth where they can. Businesses that are innovative, motivated and optimistic will be the ones that not only survive, but come out of this recession healthier, more dynamic and with a spring in their step. But the trick is in knowing what to do, when to do it, and how to do it. Business coaching has enabled many companies to capitalise on the potential that definitely exists with this market.
Make a Plan
With business coaching we find that one of the greatest restrictions for pro-active development is the availability of cash, particularly as many of the banks are still proving remarkably resistant to parting with any of theirs. In this situation, finding ways of generating cash within the business can make all the difference, and one effective way of doing this is to instigate an effective ‘Cash Gap Plan.’
What is the Cash Gap?
Whatever business you are in, you are nearly always involved in buying in materials or stock, paying staff and doing some work, in order to provide the goods and services which you sell. In many cases you will buy these in ahead of time and most likely have to pay for them before you actually use them. This moment of payment we refer to as the ‘Cash Paid’ date. You then sell your products and services and invoice your customers and clients. They usually have a period in which to settle the account before you receive the cash in your account – the ‘Cash Received’ date.
The Cash Gap is quite simply the period of time between these two dates.
What is not always fully appreciated is the BIG difference that can be made to the cash flow of a business by getting to grips with this Cash Gap. This is one area where we can really help owners through business coaching.
HOW MUCH CASH COULD YOU FREE UP?
Take Business A, a food processing company with a turnover of £1.1 million. Their Cash Gap absorbed approximately £3,000 for every day. This meant that their average cash gap of 87 days absorbed £260,000 worth of funds. Putting in place a Cash Gap Plan and reducing their gap to 58 days, released £87,000 of extra cash.
All this extra money, just by putting in place an effective and efficient plan!
Imagine what you could do with that extra injection of cash into your business.
THE CASH GAP PLAN
- Do you know how big a difference reducing your Cash Gap by one day would make? … and if you reduced it by a week? … or a month? … or more?
- Do you know how big your Cash Gap actually is?
- Did you know that some companies have a negative Cash Gap?
… that is, they always get the money from the customer before they spend anything out.
So, if I asked you – “What kind of a Cash Gap Plan do you have?” what would your response be?
That is to say:
What kind of a plan do you have, in place now and operated consistently on a daily or weekly basis, to:
- collect quickly outstanding money from your debtors
- get your customers to pay on time, and
- improve your terms with suppliers
… so that your bank account always has plenty of cash in it?
If you don’t have such a plan in place, now would be a good time to develop and initiate one, and start the cash flowing into your business.
As the old Chinese proverb goes: “When the winds of change blow, some people build shelters; others build windmills.”
Without cash how are you going to move forwards and create that ‘windmill?’
If you would like help to set up a ‘Cash Gap Plan’ or to find out more about how Business Coaching can help your business, visit our website at: www.newtonbagshawe.co.uk or call me on 01969 667896.