A Trap That Causes Many Businesses To Go Broke, While They’re Making a Profit

There’s a saying in business, “You can go broke making a profit.” And another, “Cash is king. Profit is theory.”

As you know only too well, you don’t pay rent, meet payroll or pay your bills with profit. You pay them with cash.

A business can make a lot of sales, have a book full of orders, have delighted customers and clients, have a great reputation, be growing, and yet still go broke.

Why? Cash flow.

The business might be profitable on paper, but have no money left in the bank. They become insolvent.

A growing business is often hungry for cash… hungry for inputs so it can make the business’ outputs, be they physical products, services or a combination of both.

The tragedy in this is that cash flow crises can often be averted. They can be predicted, planned for, and then contingency measures put in place.

For example, if a business has seasonal effects where some months are busier than others, or if a business knows it has some jumps in expenses or fixed costs approaching-such as moving to a larger premises or hiring more staff to cope with growth-then these expenses can be planned for and compared with the planned income in those months.

Which would you prefer to do?

Call your bank manager and ask for a short-term loan or increase in overdraft when you are urgently in need of the cash (and therefore stressed, and desperate, and not in a great frame of mind to negotiate good terms), or

Call your bank manager 6 months in advance and meet with him or her to explain the coming cash crunch, the reasons behind it, and plan for the funding in a calm, relaxed, totally-in-control manner?

Not only would you get the loan, you’d impress the bank manager and strengthen the relationship for further funding, should it be needed to support your growth.

The bank manager would see you are a professional operator with a planned approach to your business, not a fly-by-the-seat-of-your-pants operator. (They see a lot of those. They don’t like doing business with them.)

Apart from the relationship with your bank, there’s the immediate effect of sleeping better at night.

We all seek a level of certainty to comfort us. Knowing what lies ahead in business and planning your cash flow gives you a peace of mind and confidence in your day-to-day work that will rub off on those around you… in your workplace and at home. It’s a good feeling.

This is one of the reasons we are so passionate about helping our clients put together cash flow forecasts, to help them keep their business on track and to avoid any stressful, unpleasant surprises in the coming months.

It doesn’t matter whether a business is a one-person hairdressing or lawn mowing business, or a 10 person, 20 or 200+ person business.

Every business needs a cash flow forecast.

Running your business without a cash flow forecast is like driving a car at night along a dark country road with only your normal headlights on. It’s hard to see what lies ahead. A kangaroo or some other wildlife might come right out in front of you, leaving no time for you to react. CRASH!

On the other hand, a cash flow forecast is like driving along that country road with high beam on. You can see so much more. You can drive with much more confidence. Less stress. And avoid the CRASH!

Another thing we often find in helping our clients build realistic cash flow forecasts, is that we can spot problems and make suggestion that help improve the business’ cash cycle. This puts money in your bank account.

For example, a combination of negotiating better terms with suppliers, tightening up or at least clarifying and enforcing your business’ own credit terms, and reducing stock holding and waste can have a powerful positive effect on your cash flow.

So, if a cash flow forecast is so crucial, why do many businesses not have one?

Simple. Business owners get busy. Busy pleasing customers or clients. Busy dealing with staff. Busy paying suppliers. Busy generating sales.

Also, it’s easy to get ‘too close’ to your own business. “You can’t see the forest for the trees,” as the saying goes.

Having an independent and fresh pair of eyes come in and look at your business-especially cash flow which is its life blood-allows opportunities for improvements to be identified. Things that are there, but difficult for the business owner to see amidst the ‘busy-ness’ of it all.

So, what should you do about it? Call us. Take action. A cash flow forecast investment is more valuable than you think.

Your next step… Call us on 08 8372 7837 or email us on [email protected] to make a time to meet and discuss your options. We’ll then outline your investment in our services so you know exactly what lies ahead.


Suresh Rajani is the Business Leader at Tax First – an accounting and business advisory firm located in Wayville, South Australia.

Exactly What Is A Business Coach?

I am often asked “What is a business coach”? Whatever field you may be in, the principles of coaching remains constant. In that regard, a Business Coach is a professionally trained coach who works with a business or business owner to bring about a dramatic improvement, very similar to how a sports coach drives an athlete to be the best in his or her chosen sport. Every successful team has a coach, even those that are already on top. They rely on their coaches for an objective and unbiased opinion, and for expert input geared towards realizing their full potential. It is exactly the same in business. You may be a novice entrepreneur looking to start your own business, or a highly successful executive searching for new avenues of growth and expansion for your company, it makes no difference, having a Business Coach at your side of the ring may mean the difference between a split-decision win and a knockout.

Sports analogies aside, a Business Coach is someone who oversees, guides, and assists you-the business owner-in starting a business or developing an already up and running one, may it be large or small in scale. There are a myriad of factors that can come into play in any business venture, making each one a unique case, thus, a good Coach will help you draw up objectives and goals that are tailor-made specifically for your business’ current standing and future growth. The key to a successful relationship between you and your Business Coach is commitment from both sides. Both parties must be willing to devote time and effort in establishing trust, good rapport, and mutual respect.

Your Coach will meet with you on a regular basis to discuss business and even personal issues that you are currently facing, since problems in the workplace, more often than not, spill over to your personal life and vice-versa. These personal meetings will help the Business Coach get a general grasp of your personality, weaknesses and strengths which will help both of you in painting a complete picture of the situation. It also allows for frequent tweaks in the “game plan”, adjusting it to suit current needs and developments as you and your business grows and evolves. This sort of setup will keep you and your business continually moving forward towards the ultimate goal that is success. This is done by forming a concrete idea of what success means to you, and bearing in mind what you need to do in order to make it a reality.

Getting a Business Coach may sound like a panacea for success in business, but having this sort of false expectation benefits no one. It will only lead to disappointment for you, and cause difficulties for your coach. The role of a Business Coach is to coach business owners through guidance, support, accountability and encouragement, not doing all of the work for you.

You can think of your Business Coach as a friend, someone who will listen to you em-pathetically and act as a sounding board. But above all, he or she will be your champion in your fight for success in the brutal and ruthless world that is called Business.

Why Start A Small Business

As with any career, there are no guarantees that starting a small business will make you happy. Even though becoming your own boss will empower you to take control of your own destiny, it will also present many challenges along the way. So why start a small business and will it bring you the happiness and the lifestyle that you yearn for?

As the current economical downturn continues to cause uncertainty, more and more people are choosing to start a small business. Some are taking this route by choice, while others are being forced due to not earning enough money, personal debt soaring and becoming fed up of waiting for things to improve. Even graduates are starting to turn their back on their chosen careers and opting for the entrepreneurial route instead. However can anyone be successful in business?

The answer is sadly, no. Even if you have the best small business ideas in the world, have a great work ethic and a determination to succeed, these things alone will not guarantee you success.

You will need to be able to market your small business idea to others. Firstly to a bank or lender in order for them to support you by allowing you to open up a business account with them and to lend you funds if your business requires it.

Then you will need to convince your customers that you have what they need. Whatever line of business you choose, there will usually be a lot of competition out there so you will really have to work hard to convince them to buy from you. This can be achieved by building up your brand, (either your product or yourself), in order for them to connect with you and to build up trust for them to buy from you. Having a good reputation is paramount for success in business.

Even when you have branded yourself well, this alone will not a guarantee you success within business. For example, even well known celebrities who have embarked on business ventures have not always been successful, despite having a great brand. For example whilst Jay Z has been extremely successful within his business ventures having co- founded many successful companies including 40/40 club sports bar, Carol’s daughter beauty products, Brooklyn nets NBA, Def Jam records, Roc -a- fella records and clothing company Roca wear, fellow singer Kanye West was not so successful in his attempt at launching his clothing line Pastelle.Despite having a passion for fashion, two days after launching photos of his new fashion line, the business folded. Many believe that his interruption of Taylor swift’s acceptance speech at the MTV music awards contributed to the demise of his fashion line, thus proving how important having a good reputation is in business.

I, myself know only too well how quickly things can change in business. I lost count of how many times other supermarkets opened up close to my retail outlets causing my profits to drop. However fortunately I only lost customers for a short period as they always came back to my store largely due to the excellent customer service that I provided and also because I kept introducing more lines and better promotions to give them more value for their money. I regularly reviewed what my customers wanted and made sure that I provided for their needs.

I also constantly faced stiff competition when starting up my building company. However, again, the good reputation that my company built up, along with establishing the best marketing for that business, ensured the success of that business too.

When starting a small business it is important to be able to face the challenges that it can present. As well as being able to diversify to meet the ever changing needs of your customers, you also need to be aware of how difficult it can be to suddenly be accountable to others as well as yourself.

You will suddenly be accountable to your bank manager, your staff (If you have any), your customers and also your family as they too will be dependent on the success of your business. You will also find yourself suddenly without the luxury of having a guaranteed wage, sickness benefit and pension, all of which can be added pressure especially if you have any dips in trade which can often happen.

The best way to deal with such worries is to try to keep some spare cash aside when starting your own business, as security to pay bills in case of any hiccups along the way. You will also need to regularly analyse what is working well within your business in order to stop what is not working and do more of what is working.

To close, if you have any new business ideas that you feel passionate about, starting your own business can be a great way to create a better work/life balance. It can be very exciting and rewarding but you will need to recognise that you will have to work very hard at the beginning to get your business ideas off the ground. You will also need to have a detailed business plan, work hard at marketing and branding your product or service, build up a good reputation and most of all have a passion and determination to succeed. Take it from one who knows!