http://w5coaching.com john@w5coaching.com
Mark: Hi, it’s Mark from Top Local Lead Generation and we’re here with John Nieuwenburg of W5 Coaching in Vancouver. John’s one of the top business coaches in Canada and actually in the world, and we’re going to do some interesting things today. How’re you doing today John?
John: Doing terrific, thanks for asking Mark. How are you?
Mark: I’m good. So this is one that as a business owner that I think we’ve all had to face, is a cash crunch keeping you up at night?
John: Yeah, gosh if you’re a business owner and you’ve never had that problem consider yourself blessed. The truth of it is as as a business owner, almost all of us, maybe I could even say 100% of us, have had a time or two or more often, where we’ve had a cash crunch and been unable to pay the bills or pay the bank or make payroll. So the first thing I’d like to offer about that is this, this observation is pretty well known but it’s this, revenue is vanity, profit is sanity but cash is reality. And what that means is that we often to get caught up in thinking about sales and sales are the lifeblood of a business and if we don’t have sales, nothing is going to happen. But there’s a number of things that can be true. Do you know it’s possible to be 100%, or to have profitability in your company and yet at the same time be running out of cash? How could that happen you say? Well it can happen in a couple of different ways. For starters, well let me give you the five most common causes of cash flow.
Number one is poor collections. So you’re making lots of sales, you’re selling it at the right price but your clients aren’t paying you on time, they’re paying 30, 60, 90 days late and that produces a thing called a cash gap, where you’re kind of financing your clients and as a result your payroll, your inventory and all those things that need to be paid are on the pressure cooker and that’s what’s keeping you up at night because your clients aren’t paying you fast enough. Or maybe you’re not pricing your items high enough, so you’re getting sales, it’s a competitive environment. Some of my clients talk about having to compete with China and these other price conscious places, but the fact is that if you’re selling but not making enough money to cover your overhead, well no wonder you’re going to have a cash crunch, right. So people sometimes sacrifice getting gross margin for the sake of getting sales and aren’t attuned enough to the gross margin requirements in their business. Another thing that can happen is that you miscalculate or you’re forecasting inaccurately your upcoming expenses. And would you believe it or not that often the cause of a cash crunch is that you’re growing too fast. How can that happen to you, you say?
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