May 17th, 2012 David Finkel (Taxloopholes.com Advisor)
I wanted to talk with you today about funding the growth of your company.
If there is anything that 20 years of building successful companies has taught me is that GROWTH ALWAYS COSTS MONEY!
Today I want to share with you three quick tips on getting that funding to grow.
Funding Tip 1: Shorten your collection cycle.
By far the most important law of managing cash flow is shortening your collection cycle.
Just what is your collection cycle? It’s the time it takes from the moment you have to pay “Cost of goods sold” (aka: COGS) and the time you actually collect on your receivable.
The longer your collection cycle the more money you’ll need to grow. Why? Because it means you’ll have to wait longer to get paid back for your cost of producing your product or service.
For example, if you are selling a service and you have $5,000 of costs (staff time, materials, etc) to do a job that you bill your client $14,000 for, but you pay out the costs (payroll, materials, etc.) on day 1, and don’t invoice until the job is complete on day 45, and don’t get paid for 45-60 days after that, you may have a collection cycle of 90-105 days. That is a long time to float your costs.
Hence as a business owner, to make it easier to fund growth, you’ve got to do all you can to shorten your collection cycle.
Can you collect a deposit in advance? Or even get paid up front? Or get progress payments? Or collect right at final delivery? Or… You get the idea.
Funding Tip #2: Get better terms with your vendors.
Can you get 30-60-90 day payment terms with your vendors?
How about getting a payment plan with your vendors versus paying cash up front? Often you can make them payments over 6 months with ZERO interest.
Funding Tip #3: Turn fixed expenses into VARIABLE expenses.
Can you take something like “payroll” (a fixed expense) for your team to do the work and turn part of that into a pay for work performed or pay for results basis (a variable expense)?
Take the example of Scott, one of our consulting clients who owns a heating and A/C company. He took one of his biggest expenses in his “COGS” – the labor of his technicians – and shifted that from a fixed hourly cost to a “piece work” contract basis.
The result? His tech makes 30% more money, but now Scott doesn’t have to pay him unless and until he has a job he has completed. Funny enough, his tech now finishes the work much faster so Scott has increased his capacity without having to hire another tech!
So there you have a quick list of these three funding growth tips.
Make sure you register now and join me this Sunday for the Five Secrets to Scale Your Business webinar. I’ll go into great detail on more ways to fund growth and give you clear examples you can apply directly to your business.
See you on Sunday night!
P.S. If you want to learn how to scale your business the right way and build a business that you love owning, please make the time to be there. Click here to register now!