Healthy Reserves Build Good Business Value-3 ways you can improve your cash reserves.

Chia-Li Chien | Jun 03, 2013

A smart business owner, who we’ll call Joanna, has s a niched financial services firm that has a very long sales cycle, which requires intensive labor to produce their product. Although she is in the financial services field, she has her fair share of cash flow issues due to how she structures her client payments.

Sometimes, she misses her monthly or quarterly projections. It may then take a few months just to catch-up to where she planned to be in her P&L. However, like most small businesses, Joanna finds that there are certain investments that must be made and simply can’t wait.

Joanna found herself in this very predicament at one point. Her office lease was set to expire in 90 days and she was unhappy with her landlord. She found another building nearby, and without enough thinking it through and planning—not to mention making projections—she made a down payment for the deposit on the new space and started packing.

Meanwhile, her cash flow was about 25% behind projections. Around the same time, she got a large contract from a very high-profile client, creating the need to invest in her ecommerce infrastructure to accommodate new services requested and contracted by this particular client.

She suddenly and unexpectedly found herself stuck in a very sticky situation. With the new space, she would pay 30% more rent than before and now the new business she had just contracted would require an additional 25% cash flow for the ecommerce upgrade required. She was faced with the sudden need to use her line of credit or her business credit card for this 5-month investment need.

However, this further put her in arrears on her available cash position in the business. Joanna also found herself dealing with the added pressure and stress because of this cash flow issue. She became very agitated, even at home with her own family. This, of course, caused unwanted friction in her in the office and home.

Joanna decided to follow my PROFITS MATTER® process. PROFITS MATTER® is not a quick fix—it’s a process, but within three months time, Joanna was back on track. Her cash flow met the expected KPI (Key Performance Indicator). She continues to work with many different tools to ensure her business health stays on track.

After 12 months following my process, Joanna has achieved her working capital cash reserve goal. Most importantly, she gained an additional 150% in net profit. Net profit matters! It increases the value of your business if you consistently demonstrate an upward curve.

The lesson here? Don’t sabotage your business! I understand that running a business requires investments—some riskier than others. Sometimes they come unexpectedly in the form of a welcomed client need or request. Sometimes they are planned. But no matter what, you must have a process to regularly gauge how healthy your business is:

1) Select and apply the right combinations of tools.
2) Follow the processes that works consistently.
3) Monitor results regularly and make proper adjustments to either tools or processes.

Many of you may not have considered working with a CFO (chief financial officer) either on a part-time, full-time basis or even project basis. Perhaps you don’t know what to look for in hiring a person for that need. But it may be time to explore your CFO options in order to shore up your cash reserves and capital needs options. (See my previous article ).

As you consider all your options in getting or maintaining healthy cash reserves, you make also wan to take my PROFITS MATTER® assessment, a quick and easy way to assess where you are in capturing value—and it’s a great tool for measuring your business potential for success.

Why not go ahead and take this quick and easy assessment now? You’ll receive your assessment report when you complete it on-line.

For more information beyond this assessment, let us help you further determine the health of your cash reserves, and show you how to improve your overall business health as you move forward. Or, perhaps you want to continue to work with your existing CPA. We can coach you on what to look for and how to work with your existing team too!