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How To Fix Cash Flow In Your Business Before You Fix Anything Else · The Brown Box Podcast

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Most businesses don't struggle because of a lack of ideas. They struggle
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because of what happens between the idea and the execution.
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I'm Michael Logan and this is the Brown Box Podcast
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where we break down the systems, decisions and leadership disciplines
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in and operational strategies that turn good businesses into better performing
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ones. If you're ready to think differently about how you run your business,
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let's get into it.
0:45
Welcome to episode two of the Brown Box podcast and I
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am talking about how to make
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sure that you can plug the holes specifically with cash flow before
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you even begin the process of turning around
1:02
your business or even scaling your business. It's so crucial that
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when you are trying to transform your business that you take
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a look to see where the cash is going and that
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you basically focus on stabilizing
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cash flow before you build anything on top of it.
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But before I get into that, I want to just talk about a few basic
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principles that you're going to need. Generally speaking, with any business turnaround
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and whenever you're trying to right the ship,
1:34
grow your business, there are three essential principles
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that you need to adopt for yourself before
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you even engage in the journey.
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So the first one is that when you're trying to
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create the firm foundation that you're going to build on is that
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you do no harm. Like the Hippocratic oath that doctors take.
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As a business owner, you have to stop the behaviors that
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are causing your business to operate below its highest potential.
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One of the biggest things that I've noticed or seen in business
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turnarounds when I've met with business owners and business leaders,
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employees, management of small firms,
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is that the last time that
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they had an issue that was causing the
2:32
firm pain was the day
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before I walked in there, they were still
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engaging in the behaviors,
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the destructive behaviors that got them there in the first place.
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At the end of the day, it's critical that
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all bad business behaviors cease.
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Do no harm. Now I get it. You're not going to know that you exactly
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which behaviors are the ones causing the issue essentially
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before you have some sort of consultation, unless you read my
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book the Brown Box. But not harming
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yourself before you get started is a crucial aspect
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of making a change. The second
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principle, whenever you're trying to scale or grow or turnaround
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your business, is that you have to implement the most important changes immediately.
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You cannot wait. You've probably waited enough prior
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to beginning this process, and there is no reason to
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implement or wait on implementation until you feel like you
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are ready to go. Once you spot a mistake, you don't want
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to hesitate, to try to make a change, you want to Change it within
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24 hours. And then
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the third thing is less about tangibility
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and something that's kind of intangible. It's a soft science.
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It's hard to measure. But what it is is humility. You got to humble yourself
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to the learning process. You don't want to be the person that says,
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I've always done it this way. Because that
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mindset of I've always done it this way, I quote, always have
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done it this way is the kind of mindset that prevents you from
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discovering new and exciting ways to run your business
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in a way that people actually enjoy interacting with.
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So those three principles are crucial to
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making your business a success and unlocking
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the potential within yourself.
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As a bonus, I want to offer you something I think
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is really important.
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Oftentimes business owners have
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who are creative, right? And essentially being an
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entrepreneur requires the creative part of our brains to
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engage. And so we like to create. And so typically, business owners are idea
5:14
people. And often one of the struggles that I see with
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leaders in businesses are that they have so many ideas and
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so many things that they want to accomplish,
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so many things that are, are, quote, important to them.
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But the problem is, is that they don't
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focus on or have a hard time implementing
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things that actually move the needle. And so
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I created a simple but ruthless framework
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for how to decide what priorities
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or initiatives you should give attention to and which ones,
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frankly, are not relevant to including in the
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business. And so the framework that I use
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is called the 3Q efficiency filter.
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Now, the 3Q efficiency filter is
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a pretty simple but effective,
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in my opinion, process on how to decide which
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processes, systems initiatives deserve
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your complete and full attention and which ones can be
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put on the back burner for later.
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And so the 3Q efficiency filter, it stands for
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the three question efficiency filter. Essentially, this is the three questions.
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These are the three questions that you need to run your ideas through before
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you implement them in your business to see if it's something that
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would actually help your business or if it's something that might harm your business.
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So what are the three questions that you need to know?
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Well, the first one is, is this truly better
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than what I have right now?
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That's a question that oftentimes goes
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unanswered when ideas are flowing because the idea
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seems fresh and what you've been doing in your business feels stale.
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And so most decision makers and
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a company don't ask themselves, is what I
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want to implement truly better than what I have right now,
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now this requires ruthless honesty because
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it's easy to justify why something that you want to implement
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because you feel like it has all the right tools should be included in
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your business versus
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something that you really
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need to implement and the company can expend resources putting into your
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business. And if you don't have resources, it should make this question way
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easier. The second question in
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the 3Q efficiency filter is will I be sacrificing
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quality time or resources beyond what
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I can afford? You know what
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resources you have to allocate, especially if you're in
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a P and L financial decision making position in your firm,
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you know what resources you can allocate to whatever
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the initiative is. But it's not just about monetary
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resources. It's also about the labor resources
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behind it. Can you afford to apply labor
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to whatever that initiative is? Time is a
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resource. Quality and attention are
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both resources. And if you don't have any of those to spend
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on what you want to implement in your business or what you're
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thinking about, you might find yourself in debt.
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You don't want to sacrifice quality or time in
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an effort to try to push for something
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that you think would work, that you're just not sure of.
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So you may not be able to afford it in many different
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ways. You know, in economics,
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the first rule of economics is people
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face trade offs, so companies face trade offs as well.
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That means that whatever it is that
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you're deciding to do that there's going to be a trade off,
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there's going to be a cost associated with doing
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that particular thing. Right? So you may have to
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get rid of something else in order to pursue another initiative.
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And that might that thing that you have to trade in
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order to pursue a new initiative you may find is not worth it for you.
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Ironically, the second rule of economics is that
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the cost of something is what you give up to get it.
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So whatever it is that you've given up to pursue an
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initiative that is nameless, it may or may not work.
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Is the cost that you're paying to actually do that,
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that thing? And so those are the three
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questions that you have to go through when you're trying to decide whether or not
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you should implement something in your business. Is it truly better than what I
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have right now? Honestly,
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will I be sacrificing quality time and resources beyond what I can afford?
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And here's the third one, without speculation,
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does this move the needle in my business right now?
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Do you think without speculating, can you
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assess quantitatively the impact of
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including whatever that resource is in your business or
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initiative in your business, will it move the needle?
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And if you can't say yes to all three of those things,
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then you should not proceed. If the
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answer to just one question is no, you should not proceed.
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You must say yes to all three of those things in order
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to pass that. To pass that hard gate
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that we're talking about. But now I want to transition
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into the first step in a turnaround,
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which is triaging cash flow. And basically
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by triaging cash flow, I'm talking about stopping the financial bleeding before
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it's too late. You know, you've probably
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had that feeling in the pit of your stomach that you need
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to find money for this bill, for this payroll. My bill
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is going to get shut off this week. Payroll is due next Friday. Where am
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I going to get the money? I only have half of it actually to
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put towards a bill, a payment or payroll.
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The real question is, is it the finances that cause anxiety
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or is it the lack of control over finances
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that makes you worry? The answer
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is probably a little bit of both. You have both the anxiety
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from finances and you have anxiety over the lack of control of your finances,
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and that's making you worry. And if your
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business is struggling to make a profit, you have no choice but
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to do something different than what you've already been doing. Right. But this
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reminds me of what. Well,
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this is a problem that most business owners go through, and business
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owners and in business is that they have an issue. There's finances.
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They don't know where to start. They don't know how to solve the problem.
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You know, in the book, I talk about a scene in
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the movie the Martian, which I really, really like. The Martian
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is one of my favorite movies. And starring in the Martian
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was Matt Damon. And in the movie, at the end of the movie
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when he was stranded on Mars and they had to come back
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and save him and he had to survive until they
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came back, which I think was like six, six months, maybe six or nine months
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before they could even get back to him to try to save him.
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One of the things he said when he was teaching a class at the end
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of the movie, and the class asked him a simple question, they just said,
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well, how is it that you were able to survive? And what he said to
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them, which I thought was simple but profound, in the movie, he said,
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I just learned how to solve one issue and then I
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learned how to solve the next. That is
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how you solve financial problems in your business is that
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you can't solve all of your problem at Once ingesting
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information from people who have already succeeded
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and people who are already beyond your point is
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good information, no doubt. But it's not necessarily going to help you get to the
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next level. And to manage your finances better,
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and especially if you're already short money, you need to
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think about how you can change the trajectory of your cash,
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your cash situation in your business. Every business has a cash situation.
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Some of it is very positive, some of it is negative,
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some of it is in
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between, some of it depends on the day.
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But what does it mean to triage your cash flow, which is the T in
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turnaround? What means that you need to differentiate between
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revenue, profit and cash on hand? Cash flow is your business is lifeblood.
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So you must shift from a negative to to positive as quickly as possible if
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you are negative cash flow in your business. Now, this might sound
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obvious, but sometimes the obvious is what we miss.
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You need to go from negative to positive really, really quickly.
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A dollar saved is a dollar earned. These are all kind of
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truisms or aphorisms that we've heard over the years in business.
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But at the end of the day, why is it that so many people know
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this and they don't do it? So it's all well and good to say,
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hey, Mike, I already know I can't be negative profit and I have to be
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positive. But why is it that so many businesses just simply don't
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do it? Well, it's because there is a component of will that's associated
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with getting this stuff done.
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There is, you know, a,
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an element of having to,
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you know, try to figure out how exactly
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to move in order to make it work.
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And you need to be prepared for that element, that process,
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and you have to be committed to making it work.
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So, um, let's talk about that.
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What goes with making it work? Well, the first
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thing you need to do is you need to look at what cost you can
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cut. Cutting cost is one
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of the singularly biggest ways
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that you can make a difference in your business.
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If your business is losing cash,
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it may be delivery, it may be your employees,
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it may be you. But if you're outspending what
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you can afford, then cutting costs becomes the
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clear first step. But you have to be strategic about it.
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You have to cut costs that specifically create
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stable, deliberate,
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needle moving actions in your business.
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You need to perform an assessment of your cash and see what
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your cash looks like over the next 30 days. So over the next 30 days,
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do you have enough cash coming in? Do you have
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subscriptions due? Do you have certain expenses related to operating
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that you can delay, cut altogether and
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become leaner. After you perform your cash assessment
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and you list all non critical costs that do not affect the operation
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of your business, cut every single one of them. You cannot
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be afraid to cut cost in your business.
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Anything that's a nice to have that you're currently using right now that
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you don't absolutely need, you need to cut.
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If you're paying $400 a month on a CRM system and you
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do your billing outside of the CRM system and you can
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temporarily use Google Calendar and Google
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Drive to house your information and you can save yourself four
18:34
or five hundred bucks a month, you should try to do that.
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Now. You may be wondering what non critical costs you need to cut,
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but this is where you need to be ruthlessly honest with yourself to determine
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what you absolutely need to operate your business. So you need
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to take a look at what are the most significant expenses
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in your business that are non
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crucial, that are nice to haves,
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or even in some cases moderate
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must haves and get rid of those things.
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Now, if you already have a lean team and every role
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is crucial, meaning that you can't cut anybody, you need to take a look
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at the next phase. So cutting like software memberships,
19:24
vendor agreements, reducing the cost of your operational
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bills, negotiating payment arrangements with current vendors to extend
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payment terms to see if you can settle overdue bills,
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like there's a lot of things that you can do in there that will help
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you to manage the cost associated with your business.
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Get as lean as possible as fast
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as possible. Elon Musk did this
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when he purchased Twitter.
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He terminated or laid off 80%
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of the staff at Twitter and brought in a lean team to
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help him run the business. What's funny
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is that that lean team that he
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brought in to help him run the business, help him turning it around, turning around.
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But it underscores the need to try to get as cash flow positive
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as quickly as positive. And you can't be scared of the results of your
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moves to become cash flow positive. Meaning you cannot be scared that
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you're going to have to work even more than you are right now if you're
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cutting expenses. It's just part of the territory. You want to get lean as as
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quickly as possible. It's like if someone's hunting
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you in the woods, right? You ever see one of those movies and a person
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hides behind the tree and they don't want their belly to
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stick out, they suck it up, they get as lean as possible, get as Lean
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as possible. Try to get rid of anything
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that that might be overhanging that you don't need.
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The next way that you can manage your cash flow is
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by creating what I call cash boosters.
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So cash boosters are essentially quick wins and
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the quick wins specifically are wins that generate
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cash flow into the business and have
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a very short cash cycle.
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If your company has accounts receivable
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over 30 days and you haven't reached out to individuals who owe
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you money, it's time to get aggressive about reaching out to
21:38
those individuals so that they can pay you what you need to get paid.
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Don't let any account go past 30 days.
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Can you create a flash sale with a low barrier offer to stimulate
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interest in your product or service that has been sitting around for a while if
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it's a product or incentivize prospects to engage with you? If you're a
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service based business, you have to the the key to a
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short sales cycle and getting people to move and getting people to pay you quickly
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is creating urgency and
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a time horizon. A short time horizon you need to create. You need to create
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urgency and a short time horizon to capture people's attention.
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You need to find ways to
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get people to take immediate action, to reach in their pocket
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and buy something today. But they'll only do that if your offer and
22:31
the value of what you're offering is compelling.
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The key is to make it hard for prospects to say no. And oftentimes
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what I see is when business owners need cash, their ego
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gets in the way and they don't want to. Maybe I don't want to say
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take a step back, but they don't want to offer things that have short cash
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cycles because they consider it to be junk food.
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Now, in some ways they're not necessarily wrong,
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but if you want to stabilize your business, cash boosters are what's
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really important. You have to get people to
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move toward what you need
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to make in business. If you have product that's been
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sitting on the shelf, how good is it
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doing? How much good is it doing for your business to be sitting there for
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months on end and that product needs to move, you may have to adjust
23:26
cash to do it, but it's what's required
23:30
in order to get cash flow in. You're a service based business, you don't like
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discounting and service, fair enough. But add a couple of other services
23:37
that increase the value to the prospect
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so that they can be overwhelmed with the value and your service feels cheap
23:45
to them or the value of your service exceeds the Cost of
23:50
what it would cost them to get it.
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So the first thing or
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negotiable, non negotiable. When it comes to cutting costs, though, I want to make this
24:02
explicit, and I've seen this a lot in businesses,
24:07
is that when cash gets tight, the first thing they cut
24:11
is marketing.
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This is a non negotiable, do not
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cut. From my perspective, you cannot
24:23
cut your marketing budget. And this is
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often the first budget item to go because the marketing
24:31
budget fills your bucket. Now, if your marketing is inefficient
24:35
and you're not getting the results that you want to see in your marketing,
24:39
then I can understand you wanting to cut it.
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But why instead of cutting your marketing budget,
24:46
would you not think first to
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make a better budget excuse a better marketing
24:58
program for your business? This is part of kind of getting lean
25:02
and getting effective that I'm talking about is
25:07
trying to ensure that your marketing budget becomes better.
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So people cut their marketing budget because they feel like it's not effective.
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But imagine cutting the one thing that could drip leads into your business. No,
25:19
instead change the paradigm and create
25:27
a better program that brings people in.
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And that way what you're going to do is you're
25:38
going to be able
25:46
Fill your top of your bucket without costing your business.
25:50
It's one source of cash
25:55
flow that comes in through the marketing, through the marketing,
25:59
through your marketing program, I should say.
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So you should ask questions like why isn't my marketing working?
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And you should adjust accordingly. But it's insane to cut off the
26:13
spigot. Your business is on fire and the first thing you want to do is
26:17
cut off the hose, the water hose that's going to put the fire out.
26:21
Insanity. Don't do that.
26:24
So in order to get in to be successful
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ultimately with cash flow and spending,
26:31
you have to have a good mindset around it. You need to
26:35
change your mindset
26:39
to what's convenient. From what's convenient that
26:44
you've experienced before to what's hard right
26:48
now. There's two reasons I believe that's
26:53
responsible for business owners failing to act on
26:56
cash flow issues in their company. The first one
27:00
is that they're scared to look at their finances. They just don't want to do
27:03
it because they feel like it's a measure of how unsuccessful
27:07
that they've been. But business is not an exercise
27:12
in making you feel good. It's an exercise in
27:16
figuring out what works and doing that thing repeatedly
27:20
until it doesn't work, then figuring out what works differently
27:25
and then doing that thing from that Point forward. Who cares
27:29
if it doesn't work? Who cares if your numbers aren't where they
27:33
need to be? Instead, you need to focus on making hard
27:37
choices so that they conform and they fit into what actually works.
27:42
You might think that looking at your finances and seeing a lack of cash flow
27:46
makes you a failure, but forget that feeling.
27:50
That feeling is not going to help you focus on the
27:54
tangible aspects of running your business to a point where
27:58
it can actually deliver on what you promise your customers.
28:03
The second reason why a lot of business owners,
28:07
from my perspective, have a hard time with cash flow
28:11
and managing it is that they realize that the hard choices that they make are
28:15
going to ruffle some feathers with their staff or embarrass them.
28:20
I've seen it so many times where business owners and their survival,
28:24
they would rather almost put themselves out of business than make the hard choice to
28:28
let someone go. Nobody wants to let a person go in their business.
28:32
But the hard choices are really what
28:35
move the needle in business. Make the ability to make hard choices consistently
28:40
for the success of the business is what really moves
28:44
the needle. To be great,
28:48
you have to do ordinary things more consistently
28:51
than anyone else. That's what I consider extraordinary.
28:54
Extraordinary doesn't mean superhuman and it certainly doesn't mean that
28:59
you have some kind of superpower. What it means is
29:04
that you just do the right thing, the ordinary right thing,
29:08
over and over and over again, more consistently than
29:12
all of your contemporaries. So here's what I want you to
29:16
do. If you're listening to this podcast over the next 24 to 48
29:20
hours of listening to this, and if you have really,
29:25
if you have cash flow issues in your company, I want you
29:29
to cut 10 to 15% of your operating budget and create one
29:33
revenue generating cash booster. Within the next 24 to 48
29:38
hours, move on it.
29:41
Because that will be the difference between success, cash flow,
29:46
moving through your business and you trying to figure out
29:49
where you went wrong staring at your brown box.
29:54
So triaging cash flow,
29:57
working on cash flow, ensuring that your cash moves
30:01
through your business is going to be a foundational part of how you operate.
30:05
And as you grow, holding other people accountable for proper financial
30:10
management is going to be something that you're going to need to do. But you
30:14
first need have to hold yourself accountable to that same reality.
30:20
Thank you for listening to this episode. I look forward to the next episode.
30:24
Until next time, I'm Micah and you've been listening
30:28
to the Brown Box Podcast.
30:39
That's it for this episode of the Brown Box Podcast. Remember,
30:43
information doesn't change, a business implementation does.
30:46
Take one idea from today's episode and put it to work in your business.
30:50
And if you want more strategies, tools, and resources to help
30:55
you build a stronger company, visit micah-slogan.com that's
31:00
micah-logan.com until next time,
31:03
stop collecting ideas and start implementing them.