One of the missions we have as Entrepreneurs is to figure out how to make our business sustainable. Sustainability shows up in several forms. When you own a company that is continually growing, month over month and year over year, you have a sustainable business.
When your company is at least breaking even during the early stage growth, your business has signs of sustainability. When you prove the market will pay for your services, often known as proof of concept, this is a solid indicator of a sustainable business. The market dictates sustainability in business and once you have shown you have a worthwhile and viable concept at this point, you know you have a business that you can grow.
Once we have proved our concept will work, how do we increase the viability of the business? There are three financial indicators we hear talked about often in small businesses. I want to touch on all three, but there is one that stands out and opens the door to all of the others. This indicator is the lifeblood that makes everything else work.
The first indicator is the revenue. For the purposes of this article, I’m speaking about top-line revenue. Top-line revenue is every dollar you bring in from the sale of goods and services from your core business. If you are selling $10k per month of coaching services, related webinars, conferences, speaking engagements, etc, $10k is your top-line revenue number.
Revenue is important, but revenue doesn’t count any expenses. It doesn’t subtract the cost of goods sold, payroll, advertising, marketing, returns, discounts, etc. Revenue is a good indicator that people are interested in what you have to sell and overall growth, but it’s the second most important indicator of the three we’re discussing here.
Profit is another leading financial indicator. Within small businesses especially, entrepreneurs are looking to make a profit as soon as possible. Profit defined is generally the difference between revenue and what a company spends on operations, payroll, taxes, and other expenses. Profit is the money which is remaining after all other obligations are met. Becoming profitable is important, but not as important as the indicator you should watch the most in your small business.
The third indicator is the most important when beginning and growing your business. That indicator is Cashflow. Google’s top definition of cashflow is accurate for our purposes: “The total amount of money being transferred into and out of a business, especially as affecting liquidity.” Why is Cashflow so important? It’s not necessarily dependent on sales or top-line revenue nor is it dependent on profit, so what would make this be the most important financial indicator you need to be aware of?
Every business needs cash. Cashflow is the priority. Thinking about the coaching business specifically, do you want to work in a co-working space to work and host sessions? You need cash. Do you want to market your business? You need cash. If you want to hire a graphic designer for a project, or you need to travel for a conference…whatever the expense is, you will need cash. You can have strong revenue and a lot of unpaid invoices and significant expenses relevant to your business. Money that is not available to you makes it difficult to address needs when they arise.
There are lots of ways to increase cashflow in your business. Allow me to share three of the top tactics to increase cash flow that I have shared with entrepreneurs and they are making significantly more money monthly by implementing these strategies:
- Encourage customers and vendors to pay with Credit or Debit. The best way to get cash on hand is to get it as soon as possible in the sales cycle. Minimize invoices. Discount for paying with a card if you are trying to increase cashflow.
- Require a deposit. People are more likely to honor their obligations when they have skin in the game. If they are serious about your product or service, there are times when it is appropriate to ask for a deposit as your partner to work together.
- Offer a subscription service. Subscriptions aren’t just for magazines anymore. There are subscriptions in products and service businesses. Look for ways to offer more value and charge monthly which will build recurring revenue. As an example, ESPN offers ESPN+ for only $5.99 per month, and they have 8.5 million subscribers. There is a great cash flow in subscription services.
There are many other ways to develop cashflow in your business. Take a look at where you are currently and your goals. Be creative in how you can get cash to flow into your business. The more available cash you have on hand, the more opportunities and flexibility that are available for you and your business.