How Kay Managed Cash Flow During Business Growth? You Can Do the Same if You Are in Her Situation. Ready to Learn More?

In this article, I share what Kay, a business owner with a growing business, did to get over her cash flow problems.

You’ll also learn about 7 specific steps that Kay took and you too can take for managing cash flow, and to achieve smooth business growth.

We’ll also look at what Kay’s specific situation was, and also see where she is now.

If you are an entrepreneur, with a growing business and not yet sure about how to manage cash flow, then this article is for you.

Where Kay Was

For context, Kay’s business is profitable and growing, but she doesn’t have the cash flow to justify the profit she is making. That is why she is struggling to pay her suppliers, salaries.

What We Did Together

We implemented 7 steps to fix her cash flow situation.

Let’s start with step 1.

STEP 1 | Established Kay’s Current Cash Position

We did it by preparing a cash flow statement.

Establishing the current cash position is the first step you should take if you are looking to get over cash flow problems. But this is not what a struggling entrepreneur does. She looks at her current bank balance first.

We looked at her cash runaway and found out that she is not even covered for one week. You have a healthy cash balance when you are covered for at least the next 12 weeks.

STEP 2 | Communicated With Suppliers to Let Them Know of Payment Delays

Some of Kay’s suppliers are small operators. They rely on payments from her for their day to day expenses. So it was important to pay them first and make all supplier payments as soon as possible, they are due. To make sure that their work and life are not disrupted we avoid long payment delays. Instead, we communicated to them that payment will be delayed by 14 days.

Thanks to clear communication and expectations, they were okay to wait for an additional 14 days. It wasn’t too tough because they realize the importance of Kay’s business and are invested in her success, because their business is also directly affected by it. I call it cousin share theory where a small cousin is affected by a big cousin situation. If one business grows, then also the business that depends on it grows and vice versa.

STEP 3 | Prepared Profit and Loss Report Cash Flow Projections to Approach Few Banks

Kay wasn’t sure about this.

She told me,

“Shishir, I don’t like debt. It makes me anxious and worried. I have always run my business on what I have.”

I replied,

“Kay, we have to understand there is good debt and there is bad debt.

You have good debt when by using debt you make more than what you pay as interest.

You have bad debt when you don’t get any return or a lower amount than the interest paid.

And, most business debt that you use to grow or save your business is good debt. Because once your business is on track, it is an income-generating asset that continues to give for a long time.”

Good and Bad Debt is one of the principles that I teach in my $10K a Month Program and one of the modules is called Becoming a C. A. S. H. F. L.O.W. CHAMPION, where L stands for Leverage. So, to become a cash flow champion and scale your business leverage someone else’s cash.

To put this idea of using leverage to Kay’s advantage we approached a few banks to give us the best deals. Within 2 weeks, we were able to negotiate an overdraft facility, rather than a loan. We went for overdraft over loan because we knew we only have short-term needs, and we got it at a good rate of interest 2.25%.

STEP 4 | Ensured Effective and Efficient Credit Control

Every Monday, Kay looks at the list of debtors who owed her. Then she delegates an associate to follow up to ensure timely payment.

With credit control in place, which is working, Kay could match future cash inflow to future cash outflow, and never had to be in the current situation of having profit, but not cash flow to pay suppliers, salaries, etc.

STEP 5 | Did a Bi-Weekly Payment Run

In order to arrive at this position, we set up an internal process to invoice clients at the end of the month, every month, and followed up with clients to confirm they have received the invoice and also to make sure it is scheduled in their next payment run.

This information helped her organize and match future cash outflow to make payments to her suppliers based on timing and the amount of cash inflow.

STEP 6 | Projected Cash Flow For Next 12 Weeks

Once, we prepared a cash flow statement for the last three months, we started to see some patterns of cash IN and cash OUT. It gave us an idea to start projecting future cash flow. With projections done, Kay was able to visualize what her future cash position would look like, TODAY.

She said,

“Shishir, now I know whether I can afford to go on a holiday a few months from now, without worrying about having enough money to pay bills once I get back. I never had this level of clarity.”

Which was good to know.

STEP 7 | Recommended Diversifying Her Client Base

Kay operates a high-end beauty therapy business and her clients are wealthy people. Still, we suggested having a diverse mix of clients or products. So if a certain segment of clients does not buy for whatever reason, she can tap into other customer segments or products.

To put this in practice, she could sell makeup products and she could partner up with other businesses that are operating in other locations.

Where Kay Is Now

Kay is much happier now. She feels in control of the situation and doesn’t have sleepless nights anymore. She said to me, “Shishir, I’m now in peace as I have clarity, control, and confidence, which was lacking before.”

I am really happy for Kay because now cash flow problems will no longer occupy a big space in her mind, and she can focus on good things both in business and her life.

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If you like videos more than words, then I published a video with the same content, you might want to check it out below.