Cashflow and credit management – top tips

Cashflow and credit management – top tips

Cashflow and credit management are so important for businesses that it’s no wonder we’ve been blogging on these two subjects for ages.

There are two types of business – those that don’t need to focus on cashflow………and the rest.

For the rest, I hope these blogs on how to build and use a cashflow model and how to get solid credit management practices in place will be practical and helpful.

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So you’re not an accountant? That’s fine – it’s these six financial things you need to know anyway

Most business owners, most Managing Directors are not accountants. Yet most businesses get by, survive and thrive.

So what is it that these people running most businesses know or need to know if they are to be sustainably profitable and successful?

Six financial things.

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Management accounts – five steps to useful numbers

none of these steps will be very effective if you don’t have the people or the accounting software in your business to produce the information you need when you need it, so make sure that you have these basics right and seek help if you don’t.

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3 actions to increase profitable sales

Knowing your costs and your gross profit is essential but many businesses destroy value simply by selling in to the wrong market, or by positioning their products / services in the wrong place.

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I can’t have the business I want…….because of the business I’ve got!

I can’t have the business I want…….because of the business I’ve got!

This was the odd but striking conclusion of a meeting with the MD of a ten year old business who was looking for help with the financial management of his company.

We were looking at an analysis of revenue by client and he was describing the work done for the larger clients, the time taken to do it and the level of fees charged.

Then we compared these clients against the characteristics of the “ideal” clients he was looking for.

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How to decrease your dependence on that one big client (without losing them!)

Like any dependency, first you have to acknowledge the dependence. That one big client may account for a massive proportion of your profit.

What does it look like, that one big client?

On the plus side:

  • Large, regular billings
  • Large cash inflows
  • Business that everyone wants to work on
  • A source of pride across your company that you have XYZ as a client

But also, perhaps, some negatives:

  • Over-servicing
  • Low profitability
  • When they say “jump” you all jump
  • You have to work long, anti-social hours to keep them happy
  • Lack of variety across your business

Good or bad, probably bits of both, that one big client is a risk.

What if you lose them?

What if they lose you?

And it’s also an opportunity.

That one big client may be many things. In fact the only thing that one big client must not be is “that one big client”.

Tubular Bells to Tubular Belle

One of the first records released on the Virgin label was Tubular Bells. It was outstandingly successful and made huge amounts of money for Virgin.

It was a springboard for the growth of not just the record label but the entire Virgin empire.

Indeed, the significance was acknowledged by Virgin Atlantic in naming one of their aircraft Tubular Belle in 1994.

It seems to me that this is one of the best ways to utilise that one big client – use it as a foundation to grow your business and other businesses.

  • Use the cashflows to invest in marketing
  • Use the fact that they are your client to attract the interest of other clients
  • Get testimonials from them
  • Build up unique market intelligence that no one else has
  • Learn how to profitably service a client of their size

The best way to decrease your dependence on that one big client is to build up a portfolio of other big clients!

Be prepared

If that one big client ticks lots of positive boxes (profit, cashflow, good to work with) then use it as a springboard to grow.

But what if that one big client is a problem?

  • Low profitability
  • Slow payer
  • Demands too much attention from senior people

In this case you still need to be building up other clients to reduce the dependency and, when the time is right, try to renegotiate a better deal with that one big client.

However, you have to be prepared to say goodbye. Ideally at a time of your choosing.

After all, they can say goodbye to you, so wouldn’t you prefer to do it on your terms?

 

Many businesses are launched or achieve massive growth on the back of that one big client. But many get painted into a corner as well.

There’s nothing wrong with having that one big client – but make sure you make the best of the opportunity it presents.

 

Michael
@diaryofanomb