Is how we view cashflow holding us back?

I get asked all the time how high performing businesses are able to achieve those results, my same response is that it is a mindset and there are clear actions to make it possible. I wanted to explore this in an article.

We all make decisions based on cash, but from helping owners with their businesses its interesting how many different types of decisions are made based around cash. Many of us don’t stop to think about how we are making those decisions, are they emotional or based on logic? What logic are we using? What is causing us to make emotional decisions?

Understanding out thought processes helps us make changes and better choices. From my observations we typically default to one default of the spectrum or the other, but being balanced makes a huge difference to our lives and the performance of our business.
Which one are you more comfortable with? Gut feel with ambiguity or the black and white figures? You will be making decisions based on your background, the way you have grown your business and what you have organically learnt.

I want to share some stories of what you may be doing wrong with either of these extremes that are impacting you in ways you may not be sure;

There is Cash in the Bank so I need to reinvest it in the Business!

I have worked with quite a lot of business owners that feel like any surplus they are creating needs to be reinvest back in to the business so that it can grow, its the only logical way that they will get a return in the future, but I worked with an owner that took this to the extreme.

Anytime there was a cash surplus, he felt it was burning in his pockets he would actively look for the next shiny thing to go and spend it on. Often mid-quarter when he would go to a conference and there was a $30k or so in cash surplus he would start a new project to roll out a new system, start a new offering, engage with another external subject matter expert.

He would never look at his business performance (He wasn’t profitable), purely the cash balance. he was so used to running off a credit card and liabilities, it become normal. He would see an opportunity and “invest” in to grow, but wouldn’t measure any return. Once we got the disciplines in place, his debt went away, he increased his salary, and the profits are being more smartly invested to get returns or get taken out as dividends.

Cashflow issues? But I am profitable!

I once worked with someone running a $1M Revenue MSP, they were operating at industry profitability, but they were extremely stressed over money, they never felt they could pay themself enough, always stressed over making payroll. They had good discipline, they wouldn’t purchase anything without making sure there was money in the bank account. They would check their P/L frequently and would always show as a profit and their Accountant would tell them that they were doing a good job.
It wasn’t until I asked to see their balance sheet and saw their A/R (Accounts Receivables) where I found the problem, not a minor problem, but a $300k problem that has been slowly but surely growing. So while they had good basic disciplines and were checking the numbers, they weren’t checking all the data to gain a wider context. Once they started focusing on that number, they solved Cashflow in a 3 month period.

I have sensed an opportunity, but now I am chasing my losses!

I got brought in to work with a client, they had been working on building a SOC (Security Operations Centre) for about 12 months from conceptual stage, they still hadn’t gone to market and were paying for 3 high level resources.

The owner sensed a huge opportunity with their client, they had a profitable MSP and could see where the market was heading. At this point when I started working with them they had spent $500k and were looking at potentially another 12 months to get up and running with at least another $500k spend without a whole lot more revenue.

The owner was super invested in making it work, but I challenged them about the future investment. What would get a better return? Continuing down this path with no end in sight or investing in the MSP and take a lighter approach to getting into the security market? When we crunched the numbers and ran scenarios the black and white data showed the direction, the owner bought into focusing on the MSP activity and doing a lighter security touch, performance has increased and they saved the $500k.

The Data Shows I am Unprofitable, so I let people go!

Another story I can share is around a company that was using the #ServiceLeadershipIndex to benchmark their performance, they were very diligent in using this data to make decisions. They were roughly a $6M revenue company, they were of decent performance, but the data started to show they were on a rapid decline, they could see that they had lost some clients. So the owner felt like they needed to make some decisive decisions based on the data before things get much worse. They made the tough choice to let 3 of the poor performers go, unfortunately another 2 or 3 felt like it was a sinking ship so they left as well.
Turns out, the admin/bookkeeper responsible for the data had left out revenue from the reporting. So actually the decline was no where near dire and the pipeline was actually trending up. Once better data verification processes were put in place, they never made this mistake again.

These are just 4 basic examples of how things can go wrong, but all these problems can be fixed. Awareness is the first step towards change, but most engrained and systematic issues will take time and most often with outside help.

Making different and more well rounded decisions, we can get much better outcomes. So take some time to slow down and understand yourself and the business behaviours.

About the author

James Davis is the Director of Pax8 Academy Asia. Originally from Canberra, he recently moved as far south as he could to Hobart. He joined the Sea-Level family in 2020 to grow the Sea-Level Operations offering locally in the APAC Region, joining Pax8 in May 2022 to elevate the industry through education.

James is a coach that has over 16 years industry experience in owning and managing SMBs. His core purpose is “To create freedom from chaos from the lives of others so they can thrive and grow”.

He values personal development, always trying to learn something new to build his body of knowledge to grow as a person and leader. James tries to share his knowledge and experience as much as possible, believing in the go-giver mentality.

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