Are you making money but have NO CASH?

A 3 Step Strategy to Turn Your Cash Deficit into a Surplus

When you started your business, cash flow issues were not on your radar. It was just you, a few tools and supplies, and every job made a profit. No office, no overhead, no problems. And life was good.

As the business grew, you started buying things and taking on expenses. You bought a nice truck and a set of tools. You invested in a new computer and some expensive software. You really thought you had made it big when you got your first office. Then came the employees, insurance, workers comp… Need I go on?

The funny thing about business is that sometimes the bigger it gets, the less money there is. The dreams you had of making it big time slowly turn into a weekly struggle to pay the bills. That leads to stress at home and in your business.

Your consuming thought becomes Friday’s payroll.

So how do you get a grip on your cash flow? Your P&L probably shows you are making money, it’s just nowhere to be found.

Here is a 3 step strategy to solve your cash flow issues. The steps are simple to understand, and pulling them off just takes a little grit and discipline.

But.. you can do it, and it works. I know because this is exactly how I went from being upside down to having a cash surplus. I did it with the same business in the same town, doing the same jobs at the same price point.

What changed was the way I did business and the way I look at money.

Before you get started, make sure to download my Cash Flow Planning & Savings Worksheet. It will guide you through each step of the process!

Step 1: Change Your Focus

You have to shift your focus to the bottom line, not the size of your business.

As a business owner, if you need more money the go-to answer is to make your business bigger. Get more work, hire more people, buy better tools.

The problem is that making your business bigger only compounds the problem. Turning more cash is not the solution when you have a cash flow issue.

Instead, your focus must become how to drive more dollars to the bottom line by keeping as much as you can from every job.

Action Step: Decide what you can do this week to drive more dollars to the bottom line. Where can you cut costs, decrease waste, and increase efficiency? At this stage of the game, it is about shifting your mindset to lean and mean. Every dollar counts, and every dollar you can keep in the bank will build momentum through the next two steps.

Step 2: Budget

7 out of 10 small business do not have a budget.

If they need to buy a new thing, they look at the cash flow. If business is good and there is a little cash in the bank, they go buy that thing.

If they know there are a couple of jobs coming up, they take cash flow from the jobs and go buy the thing.

The problem is they are robbing Peter to pay Paul, creating a deficit in the process.

To control your cash flow, you have to work from a budget. A budget is simply today’s plan for tomorrow’s purchases.

We know we should teach our kids to manage their money wisely. The amount of money they have to spend is the amount that is in their piggy bank. If they want something that costs more, they save and wait. Pretty simple plan.

Somewhere along the road to adulthood, we lose grip on this fundamental concept. When we start our businesses, it is out the door altogether. You master the art of leveraging other people’s money to make your profit. You ride your cash flow to fund your jobs.

You get to use fancy accounting talk, that’s how a business runs in the real world. Right? Maybe so… but since you are still reading this article I am going to assume something is not working out in your case.

You need to get back to the basics. You need a budget. Every dollar gets a name, every dollar has a job, and you know exactly where it’s going before it’s spent!

I run a high overhead construction business with trucks and skid steers and huge job costs. I had to think outside the box, and I had to go way outside industry norms… but I made it work. Every dollar I spend is a dollar I already have, including cost of goods. We don’t buy with the hopes that we can pay later. We wait until we have the money saved and set aside. It may sound tough, but If I can do it, I know that you can.

Action Step: Create a monthly cash flow plan. Keep it as simple as possible, but cover all your bases. To get you started, I have put together a Monthly Cash Flow Planning Spreadsheet. You can download it right here..

Step 3: Save

You have a laser focus on the bottom line, and your budget has given every dollar a name. Now it is time to start saving for your purchases and create a cash reserve.

This is where the real magic starts to happen, and where the stranglehold of your cash crunch starts to loosen.

It will be a slow process, but you have to start somewhere.

Savings Phase 1: Save for next month’s purchases
Start with the next few months. Look ahead and write down every purchase you know you will need to make. Jump back to your budget and figure out where that money will come from. What will you cut, what will you defer, where can you set aside the cash? Use the savings worksheet to lay out your goals.

Savings Phase 2: Begin saving for big ticket items
Once you have a few small wins and have felt the excitement of making a purchase with cold hard cash, it’s time to set your sights a little bigger.

You know that someday you are going to need to buy a truck. Head back to that budget and write down “truck”. Each month, slide a few extra dollars next to it. When you have enough saved, go buy your truck.

Now… your business mentors probably told you that renting was just throwing away money. They said you could grow bigger and quicker by leveraging debt to build your infrastructure and that saving is no way to grow a real business. Maybe so, but they are not the ones losing sleep when payroll is due and cash is scarce.

When you save and pay cash, you don’t have to worry about the next slow stretch where that thing you’re paying on comes back to attack you. Minimize your overhead by buying things and owning them without payments.

Rich business owners ask: “How much?” Cash strapped business owners ask: “How much per month?”

Savings Phase 3: Build your cash reserve
If you are still with me, your entire perspective on your business is about to be turned upside down. It’s time to build your cash reserve.

Things may be going well now, but the day will come when you hit a bump. The economy will turn again. Things will happen inside your business. It will get slow. It happens to all of us and you can never predict when it is coming. It is time to get prepared.

Head back to that budget and write in: “Cash Reserve”.

Your cash reserve should cover all the expenses you would have if you don’t bring in any money or get any work for a month or two. Your industry may need a smaller or larger buffer, but 2-3 months of operating expenses & overhead is a good place to start.

Close your eyes with me and imagine getting a call from your biggest customer letting you know that they are going to be “taking things in a different direction.” This call comes the day after your top producing salesman let you know he is quitting to start his own business.

Now, instead of breaking into a cold sweat, just take a deep breath. Imaging that there is two months of cash sitting there in the bank. It’s not going to solve your problem for you, but it just bought you 60 days. Now… go home and kiss your wife and play with your kids.

I am not exaggerating when I say that a fully funded cash reserve will impact your entire life. It has the potential to shed the stress that is preventing you from being the parent and spouse you know you should be.

Action Step: Don’t get overwhelmed here. You won’t have a cash reserve next month. Start small and begin to build momentum and discipline by saving for the purchases you know you need to make in the next 3 months. Write these items into your budget.

Let’s sum it up!

If you are in a cash crunch right now, it’s not going to change overnight. But you have to start the process.

Start by downloading the Cash Flow Planning & Savings Worksheet.

Decide to focus on the bottom line. Your goal is to make your business better, not bigger. Do this by getting a laser focus on how you can keep more cash in the business. For every hundred dollars you bring in, what can you do to keep an extra 5 in the bank? Get lean and mean!

Decide to start a budget. Make today’s plan for tomorrow’s purchases. You won’t get it right the first time, but keep refining month after month until you get there.

Decide to save for purchases and build a cash reserve. Start by saving for the purchases you know are coming in the next 90 days. Next, add in some big ticket items you can anticipate. Bring it home by saving 2 – 3 months of operating expenses in a cash reserve.