Entrepreneurs Don’t Need Deep Pockets, Just Common Cash Sense

It's possible to grow a successful business without borrowing or seeking investment. You just need to know how to manage your cash.

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It's possible to grow a successful business without borrowing or seeking investment. You just need to know how to manage your cash.


Entrepreneurs Don’t Need Deep Pockets, Just Common Cash Sense

It's possible to grow a successful business without borrowing or seeking investment. You just need to know how to manage your cash.

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There’s an awful lot of talk in business circles about what makes a good entrepreneur. About what key qualities a business owner needs to go the distance and how if you’re passionate and motivated, you’ll go on to do wonderful things.

It’s not all hot air. You do need to have a spark to drive you forward. But it will only get you so far, you still need funds to fuel the rest of the journey.

In a business world, cash really is king. But it shouldn’t be confused with other funds. Put simply, cash inflow is generated from the sale of goods or services; cash outflow pays for costs. The difference between the two is net cash flow.

It’s this which determines the business borrowing needs and invariably, whether they thrive or dive. In an ideal world, we’d all be able to make sure that we have more in than out on any given day. However, for the wheels of business to turn, there has to be some winners and some losers.

When I started Moneypenny over 16 years ago with my sister Rachel Clacher, cash flow management was at the heart of what we did. It was an intentional way of operating and we’ve worked this way ever since.

We’d know, on any given day, exactly what was coming in and going out as the business was going to be funded almost entirely by positive cash flow. That meant we could have no exceptions and, as a direct result, we insisted that every single client paid their bills via direct debit or credit card.

Where expenditure involved a return on investment greater than 30 days, it was scrutinised, re-evaluated and scrutinised again.

pound coin

Do you know what proportion of your turnover is profit?

Of course, you need a pot of funds to start with, it’s nigh on impossible to start a business without it, but cash management means you don’t need deep pockets. By learning how to plan and understanding the impact relationships have on your business finances, you’ll soon realise how straightforward managing cash flow can be.

Get your suppliers on board

Suppliers are not the enemy. They need you as you need them. Befriend them. Get to know them personally. You don’t have to remember their anniversary and take them out for dinner (although that would help), but having them in your corner right from the start and treating them as a business partner is one of the best things you can do.

For one, they’ll want you to succeed more than any other client of theirs. The next step is to turn this relationship into your gain, which is actually very straightforward.

Most businesses don’t pay their suppliers within the agreed terms. It’s simply just the way it is. However, by creating a relationship of trust, you can develop favourable terms. When people think about business they think about bank debt.

In reality, your suppliers are at least as important to funding success. Milk them for everything. When fighting for discounts, fight for extended terms with the same vigour. And be upfront with them, explain your model and get their support. It’ll result in one of the most significant cash creators for you.

Prepare to chase payments

Late payers are a thing we have to come to accept in our business lives. And the chaos that arises from chasing is part and parcel of running your own show. But you can reduce the impact significantly.

It’s seldom that a customer actually can’t pay. It’s more likely that they can’t pay you. i.e. others are more important. And that importance is determined by the person writing the cheques, so it’s time to push yourself to the top of the list.

Timing is everything. On the day a payment is due, call the customer. Not a day later. Always call on the first day. And call the next day, and the next one after that. Use letters to follow up, to confirm what was said on the telephone.

A letter without a call will carry little weight. Your goal is to be blatantly personal, unnervingly efficient and unrelentingly persistent. And if you’re bad at chasing, pay someone else to do it. Just don’t ever ignore it.

I once had a supplier that had a 10% penalty on all payments outside of terms. They called to remind me and I learnt the hard way that they meant it. They were always top of my list from there on.

And finally, it’s amazing how many B2B businesses still don’t take card payments. Without them, you’ll never get past the old ‘the cheque is in the post’ line.

late payment

Chasing payments is just part of doing business

Make wise investments

Growth – more correctly actually scaling and growing your business on a serious level – is the greatest of investments. It’s the sole reason venture capitalists get their hands on so many enterprises, because they give you access to growth funds.

But, if you’re like me, and the reason you enjoy business is in no small part because you’re managing your own destiny, then VC’s aren’t an option.

I read a recent discussion about why the UK increasingly cannot match Silicon Valley in terms of start-up company growth. A lack of ‘scale-up cash’ was identified as a ‘big challenge’ to this growth.

But a careful eye on how you manage operational costs can make all of the difference. One trick I’d recommend is to use small amounts of cash to develop your marketing strategy:

At Moneypenny, we worked out that for every £1 we invested in marketing, we gained £4.50 over the following 12 months (38p per month). By scaling that up, we invested £50,000 in our marketing plan.

By the time we paid for that marketing, we had already earned over two-thirds of the original investment back. And by managing our suppliers, we’d covered the entire cost. It was a complete debt-free growth strategy.

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Entrepreneurs Don’t Need Deep Pockets, Just Common Cash Sense

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