In any business, cash flow is King, Cash flow is the life blood of any and all business. Without sufficient cash flow, your business cannot invest in the future and grow to reach its true potential.
Cash flow begins with Sales, which is why revenue generation is critical. However sales is not enough. Your sales must be Profitable.
To focus on Cash flow in your business you as the owner needs to implement a few business principles.
- The Law of Scarcity
- The Rule of Four
- Cash Cows
- Question Marks
The Law of Scarcity:
Simple stated, the Law of Scarcity affirms that you never have enough time or money to pursue all of your opportunities. You must discipline your self to focus your limited resources on those few products / services, markets and customers that offer the greatest opportunity to generate positive cash flow.
Do you know for certain which of your products / services, markets and customers are creating a positive cash flow? How are you measuring that? Are you using the Ol’ rule of thumb?
As you drive and run you business, you should be basing your decisions in business with the factual information on current & future cash flow.
The Rule of Four:
One way to determine the real or potential cash flow of your products / services is to use the Boston Consulting Group’s matrix of Strategic Business Units. Essentially they devised an uncomplicated way to examine your products / services with a methodology that breaks down your products / services into four categories
Your Cash Cows are those products / services that represent the mainstay of your business. Your Business is excellent at producing, selling and delivering them. They are highly profitable and sell steadily, generating a reliable and predictable positive cash flow.
What are your Cash Cows? Which of your products / services do you excel at producing, selling and delivering? How are you measuring this to validate it? Cash Cows are critical for every business as we spoke about is the life blood of the company.
Cash Cows eventually reach the point where their growth tops out and eventually, they will decline and disappear. As a Business Owner you need to do everything to nurture your Cash Cows, to protect their position in the market place.
Your Stars are currently net recipients of cash. Although they are or could be a cash drain on your operations today, they represent your future and in your judgement they are your future Cash Cows. These are the new products / services your developing or perhaps the new customers you are pursuing or even the new markets you are attempting to penetrate.
You must be willing to invest considerable resources in these endeavors for ONE reason: You believe the future cash flow return on this investment will be hugely important to your business future success.
So what are your Stars? How will demographics changes in your industry affect your business? What are the products / services your customers NEED or demand in the future? Where are your competitors investing their capital?
These are yesterday’s Stars that have not fully delivered like you originally thought. They have enormous promise, merited serious commitment of your business resources, however that promise of delivery has not yet occurred. It is now time to make the tough decision business owners need to make. Invest and continue believing time is the issue, Invest and continue with small changes in strategy, market, etc. or realize it is now time to cut and run.
How will you determine this? What metrics to you have to use to base such a decision. Smart, profitable business owners use business principles of Metrics, Zero – Based thinking, G.O.S.P.A/ (Goals, Objectives, Strategies, Plans and Actions) to arrive at such answers. Are you? Do not let your Ego or Gut tell you everything. Be brutally honest in your assessment. Use a Key Performance indicator which will tell you is this a potential Cash Cow or becoming a Dog.
With all respect to our four legged canine friends the term used for those products / services that you have invested time, resources, money and “blood, sweat and tears” into that are yielding little to no cash flow or worse consume cash need to be STOPPED.
These very loyal products / services are burning up your business resources draining your energy, time, money, employees, and if you do not see this the Sigmoid Curve effect in Business of downward movement could be occurring.
Do not let this happen. Cash Traps Dogs need to be uncovered, identified and discontinued ASAP. Grow your portfolio of products / services do not ride them to death.
Strong business owners Work ON their business on these issues vs. IN their business with day to day, minute to minute issues. Take a look at your business to identify the Cash Cows, Drive your potential Stars, Review your Question Marks and lastly ruthlessly eliminate your Dogs.
For more information reach out to:
Focal Point Business Coaching of Pennsylvania
Mark R. Steinke
Elite Business Coach