by MHolland | Jan 10, 2025 | Business Tips, Cash Flow, Cloud-based Accounting, Systems
Profitability and cash flow—two terms often used interchangeably—could not be more different.
And yet, countless businesses that report strong profits find themselves scrambling to pay bills, meet payroll, or keep the lights on. How is this possible?
Let us unravel the mystery behind why profitable companies still go broke—and, more importantly, how you can avoid this financial trap.
The Profit vs. Cash Flow Dilemma
At its core, profitability is a measure of what is left over after all expenses are deducted from revenue. It looks great on paper, but it does not guarantee cash in the bank. Cash flow, on the other hand, is about liquidity—the money you have available to cover day-to-day operations.
Here’s how things can go sideways:
Timing Mismatches:
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- Imagine sending out a big invoice for a completed project, but your client takes 90 days to pay. Meanwhile, your suppliers want their money yesterday. Profitable? Yes. Broke? Also, yes.
Overexpansion:
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- Growth is exciting, but rapid expansion can drain cash reserves. Those new hires, bigger office spaces, and fancy equipment do not pay for themselves overnight.
- These are all Fixed Costs that you must have the Gross Profit to cover.
- For every new Fixed Cost planned take the monthly amount and divide it by your Gross Profit Margin.
- Let us say you want to hire a new operations manager; The cost is $7,500 per month. Your Gross Profit Margin is 30% (the amount left over after direct Cost of Goods Sold are deducted from your sales, expressed as a percentage).
- $7,500 divided by 30% equals $25,000. You need at least $25,000 in new sales to cover that new operations manager.
- Do this with every new Fixed Cost to become aware of how much you need to cover this extra cost in your business.
Poor Inventory Management:
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- For businesses dealing with physical goods, tying up cash in slow-moving inventory is a surefire way to squeeze liquidity.
- I once coached a business (not a client; I did it as a favour) that was profitable for 35 years. They could not figure out why they showed great Net Profit and yet were struggling to pay their bills.
- On examining their Balance Sheet I quickly discovered that the bookkeeper had been recording some of the Cost of Goods Sold as inventory purchases. Thus, their expenses were understated and Net Profit overstated.
- The inventory on the Balance Sheet was not real inventory that could be sold.
- The owners were not amateurs; they were just overfocused on the Income Statement and ignoring their Balance Sheet.
Debt Overload:
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- Interest payments on loans or lines of credit can quickly eat into cash, especially if revenue is not rolling in as planned.
- Especially, also when interest rates go up exponentially when debt is up for renewal.
Ignoring Hidden Costs:
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- Costs like taxes, employee benefits, or unexpected repairs often catch businesses off guard, draining available cash.
How to Prevent the Cash Flow Crunch
Now that we have pinpointed the culprits, here are practical steps to prevent your business from becoming cash-strapped:
Forecast Your Cash Flow:
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- Regularly track and predict your cash inflows and outflows. Tools like Xero, ApprovalMax and Fathom can help you stay ahead of surprises.
Tighten Payment Terms:
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- Do not let clients dictate payment terms. Consider incentives for early payment or use tools like Plooto to automate and streamline collections.
Build a Cash Reserve:
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- Aim to keep at least 3-6 months of operating expenses in a savings account. This buffer can shield you from unexpected shortfalls.
- Most personal financial planners recommend this, yet too few businesses follow this same advice.
Control Growth Pacing:
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- Grow strategically. Before making big moves, assess how they will impact your cash flow over the next 12-24 months.
Review Debt Regularly:
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- Consolidate or refinance high-interest debt to lower your monthly obligations. Be mindful of the balance between leverage and liquidity.
Monitor Metrics That Matter:
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- Keep an eye on key metrics like Days Sales Outstanding (DSO), inventory turnover, and operating cash flow. These will give you an early warning of potential problems.
Stay Cash Flow Confident
Remember this – a profitable business is different from a healthy one. By focusing on cash flow, you will ensure your company not only survives but thrives.
Want to dig deeper into your financial metrics or get a handle on cash flow management? Let us talk. We specialize in helping businesses like yours bridge the gap between profitability and liquidity—so you never have to worry about going broke while turning a profit.
Thanks for reading…
by MHolland | Dec 13, 2024 | Cloud-based Accounting, Remote Work, Systems
Branding Is Essential
A colleague of mine at LeapZone Strategies has written a good Blog on the power of branding…
Here is the start of her Blog:
| “Listen up, in the wild jungle of today’s business world, blending in is the first step to being forgotten. You need a Brand Foundation that’s not just solid, but magnetic. We’re talking about crafting a brand that doesn’t just get noticed – it gets craved. Why? Because in a sea of endless choices and constant noise, the brands that win are the ones that connect on a deeper level. They’re the ones that spark something inside people, something that goes beyond just ‘liking’ a product or service.” |
To read the whole Blog please click here.
AI Is Everywhere
AI is getting a lot of attention these days. It seems to be the constant topic in online business feeds.
A lot is hype.
Some is not.
I have used it for help in writing a Landing page. I gave it to my Team for feedback.
There was no feedback. They loved it. Saved me a ton of time.
Some software claiming to use AI are exaggerating a bit.
What I mean by that is this – ALL software is AI.
It is intelligently helping you be more efficient and productive.
Think accounting software versus a calculator.
But it is just software code, doing what you expect.
And, heck, that is pretty cool when you think back to the dark ages…before computers.
Some, however, is mind blowing.
Don’t believe me? Try ChatGPT.
Here is a good Blog from the Freedom app people, sharing a ton of apps you can explore for a 40% gain in productivity (their claim).
To check it out, click here.
BDC Talks About AI
To prove my point that AI conversations are bursting forth everywhere, I checked on my latest BDC Blog…
And, lo and behold, they are talking about AI.
Please click here to check it out.
Thanks for reading…
by MHolland | Dec 6, 2024 | Business Tips, Cloud-based Accounting, Remote Work
Introduction
Service is what sets great businesses apart. It is the one timeless constant. It was true for a business in 1850. It is a fact now as well.
Customers expect personalized care, and your team thrives in an environment where they feel valued and empowered. For family-owned businesses like yours, building a culture of service is not just a strategy—it is an extension of your core values.
Creating and maintaining this culture takes intentionality.
The rewards are worth it: loyal customers, a happier team, and long-term growth that feels good.
Here is how you can do it…
Number 1 – Define Your Core Values and Live Them Daily
Your service culture starts with your values. Think of these as the guiding principles that shape how you treat both customers and your team. But there is the catch—values cannot just live on a wall poster or in an onboarding manual. They need to be visible in everyday actions.
Example:
A franchised business we worked with defined “transparency” and “teamwork” as core values. To bring these to life, they introduced a weekly team huddle where leaders openly discuss wins, challenges, and customer feedback. This keeps the team motivated to deliver outstanding service.
Key Metric:
- Companies with clearly defined core values see a 29% increase in employee satisfaction (Source: SHRM).
Number 2 – Empower Your Team with Clear Communication and Tools
Your team are your customers!
When they feel confident and equipped, they will naturally provide excellent service. Start by ensuring everyone understands what great service looks like in your business—and provide the tools they need to deliver it.
Do it with clearly defined Performance Standards. A clearly defined Performance Standard is one based in physical reality. If it is not visible in physical reality it cannot be measured. If it cannot be measured, it cannot be improved or managed.
Example – Answer the phone on the second ring.
This passes the above test. It is clearly observable as either done, or not done. It defines an aspect of Awesome Customer Service. Customers that get responded to quickly on the phone will feel more cared for.
Number 3 – Lead by Example
Your leadership sets the tone. If you treat every customer with care and respect—or step in to help a stressed-out team member—you are modeling the behaviors, you want to see.
Top-down management structures disempower people.
An inverted organizational chart has the business owner on the bottom. Serving the Team above him/her, who in turn serve the customers.
Does that mean the owner-leader has humbled himself into being a doormat?
No!
“Humility is not thinking less of yourself, it is thinking of yourself less.” C.S Lewis
“Humility is thinking more of others. Humble people are so focused on serving others, they do not think of themselves.” (Source Philippians 2:1-4)
Being at the bottom means you are responsible for serving everyone above you.
Being on the “bottom” in service to all does not mean poverty. Just the opposite. Being in service to more brings more rewards.
Number 4 – Build a Culture of Recognition and Growth
People who feel appreciated are more likely to go the extra mile. Regularly celebrate your team’s wins, both big and small, to reinforce the behaviors you want to see.
Ideas for Recognition:
- Create a “Service Star” award for employees who deliver standout customer experiences.
- Host a quarterly lunch to celebrate the team’s successes.
- Share customer compliments in team meetings or a company newsletter.
Example Metric:
- Teams with frequent recognition programs report 23% lower turnover rates, contributing to stronger, more cohesive teams (Source: Gallup).
Number 5 – Foster a Feedback-Driven Environment
Great service comes from a willingness to listen and adapt. Make it easy for customers and team members to share feedback.
Show them you are listening by acting on it.
Customer Feedback Tips:
- Use short surveys after service interactions.
- Ask for testimonials during your monthly Zoom reviews.
Number 6 – Keep Stress in Check
Stress is the silent killer of great service. To maintain a positive, productive team, ensure processes are streamlined and support is readily available.
Stress-Reducing Strategies:
- Streamline workflows with automation tools like Plooto for payments.
- Build a financial cushion for tight cash flow periods.
Example Metric:
- Businesses with proactive cash flow management see 20% fewer disruptions during busy seasons (Source: Small Business Trends).
Conclusion
A formidable service culture is more than a business strategy—it is a way of life that benefits everyone involved. By defining your values, empowering your team, and fostering a positive, feedback-driven environment, you can create a business where customers rave about your service, and your team feels proud to be part of the journey.
Call to Action:
What is one step you can take this week to strengthen your service culture? Whether it is recognizing a team member or asking for customer feedback, start small and build momentum. If you would like more ideas tailored to your business, let us connect during your next monthly Zoom meeting!
Thanks for reading…
by MHolland | Nov 20, 2024 | Business Tips, Cloud-based Accounting, Systems
Today I am going to explore the benefits of outsourcing your internal accounting versus doing it yourself…
Firstly, doing it yourself is draining, time-consuming, and often frustrating. Outsourcing to professionals is not just easier; it is smarter, more cost-effective, and gives your business the edge it needs to thrive. Here is why.
Reclaim Your Time
Your time is your most valuable resource. Do not waste it reconciling accounts or chasing receipts.
- Focus on growing your business instead of managing complex online software.
- Spend more time building customer relationships and driving strategy.
- Let professionals manage the grunt work quickly and accurately.
Outsourcing frees you to focus on the big picture while your accounting is handled by experts.
Access Expert-Level Support Without Hiring
Hiring an in-house accountant can be expensive and time intensive. Outsourcing gives you access to top-tier expertise without the commitment.
- No need to train employees or keep up with regulations—they have it covered.
- Get advice tailored to your business’s unique challenges and goals.
- Collaborate with a team that is always up to date on the latest tax laws, tools, and trends.
It is like having an entire accounting department at your service—without the overhead.
Save Money, Avoid Hidden Costs
Think outsourcing is expensive? Think again. Compared to hiring in-house staff, it is a bargain.
- Pay only for the services you need—no salaries, benefits, or office expenses.
- Avoid costly mistakes that could lead to penalties or missed opportunities.
- Many outsourced firms include innovative software as part of the package, saving you even more.
Better financial management does not have to break the bank.
Gain Impeccable Accuracy and Compliance
Accounting errors can be costly—missed tax deadlines, inaccurate reporting, and even audits. Outsourcing ensures your books are done right the first time.
- Get accurate records every time, with no guesswork.
- Ensure compliance with ever-changing tax and regulatory laws.
- Stay on top of deadlines without lifting a finger.
When professionals manage your accounting, you get peace of mind that everything is in order.
Stay Agile as Your Business Grows
Your business needs change as you scale, and so do your accounting requirements. Outsourcing is built to grow with you.
- Add services like payroll, financial analysis, or tax planning as needed.
- Access advanced tools and technology to streamline processes.
- Stay flexible without being tied down by in-house resources.
Whether you are just starting to scale or managing a multimillion-dollar operation, outsourcing keeps pace with your growth.
Get Strategic Insights, Not Just Numbers
Good accounting is about more than just balancing the books. It is about empowering your business with data-driven insights.
- Spot trends in your finances to capitalize on opportunities.
- Plan with accurate forecasts and cash flow management.
- Make smarter, faster decisions with clear, up-to-date financial reports.
When professionals oversee your numbers, you get the insights to take your business to the next level.
Reduce Stress, Gain Peace of Mind
Let us face it—accounting can be stressful. It is not what you signed up for.
- Deadlines are met. Always.
- Records are neat, organized, and audit ready.
- Your business is well cared for, so you can focus on what matters most.
Outsourcing takes the hassle out of accounting, so you can run your business stress-free.
Thanks for reading…
by MHolland | Nov 8, 2024 | Accounting Software, Business Tips, Cash Flow, Cloud-based Accounting
I have written in the past about the need to switch from manual cheques to online bill payments…
While cheques seem secure (you are using paper and pen, after all), online bill payments deliver awesome advantages in speed, security, and cost.
Cheques are risky. Online bill payments are secure.
That is a flip in your thinking, right?
Let us go through the seven benefits.
Benefit One – Fast and Simple
Online payments happen fast—no more waiting on the mail or bank delays. Payments are instant, freeing up time and simplifying the process.
- Quick Processing: With online payments, funds transfer immediately, bypassing the hassle of mailing and clearing cheques.
- Effortless Transactions: Forget about writing, signing, and mailing cheques. A few clicks, and it’s all taken care of.
Benefit Two – Stronger Security
Cheques can be lost, stolen, or altered. In other words, ripe for fraud. With online payments, digital safeguards work to protect your accounts, making fraud much harder.
- Top-Notch Encryption: Banks and payment platforms use advanced encryption to keep data secure.
- Around-the-Clock Monitoring: Banks and payment platforms monitor for unusual activity, flagging anything suspicious.
- Two-Step Authentication: Extra security steps add a second layer of defense, reducing the risk of unauthorized access.
Benefit Three – Lower Costs
Running a business means watching expenses. Cheques require printing, mailing, and processing fees that can add up. Online payments save money by cutting out these extra costs.
- Goodbye to Printing and Postage: No need to pay for cheques, envelopes, or stamps.
- No Lost Check Headaches: Online payments remove the risk of lost cheques and the hassle of reissuing them.
Benefit Four – Control Cash Flow
Online payments let you manage cash flow with precision. Scheduling and automating bills helps avoid late fees, and you always know when money is moving out.
- Easy Scheduling: Automate recurring payments to ensure bills are paid on time, every time.
- Predictable Cash Flow: Set dates for payments so you know exactly when funds will leave your account.
Benefit Five – Go Green, Save Green
Online payments aren’t just convenient—they’re better for the environment. They eliminate the paper waste from cheques and the carbon footprint of mail delivery.
- Paper-Free Payments: No more cheques, no more envelopes—just instant, eco-friendly transactions.
- Reduced Emissions: Skip the postal service and the delivery truck, keeping your operations lean and green.
Benefit Six – Streamlined Record-Keeping
Online bill payments mean clear, organized records. Every transaction is digitally recorded, making bookkeeping a breeze and audits smoother.
- Automatic Record Generation: Online payments create a digital record, reducing errors and streamlining account reconciliations.
- Easier Audits: Digital records make it simple to trace and verify expenses.
- Software Integration: Syncing with accounting software like Xero or QuickBooks reduces manual work and ensures your records are up to date.
Benefit Seven – Build Better Relationships
Prompt payments build trust, and online payments make timeliness easy. Vendors know they’ll be paid on time, and customers appreciate a straightforward, reliable process.
- Reliable Vendor Payments: Scheduled payments keep you in good standing with vendors and partners.
- Customer Convenience: For customer-facing payments, digital options make it easy and fast—an experience customers love.
In Summary
Cheques have had their day, but online payments are faster, safer, and more efficient. For businesses focused on improving cash flow and cutting costs, going digital is a smart move.
Switching to online payments means easier financial management, stronger security, and streamlined operations—making every transaction simpler for you and your business.
Thanks for reading…
by MHolland | Oct 25, 2024 | Accounting Software, Business Tips, Cloud-based Accounting
Running a business or organization is challenging enough without losing money you didn’t even know you were losing!
Profit leaks—small, unnoticed losses—can quietly drain your bottom line.
There is a solution – using your basic reports in a new way.
At ControllershipPLUS we take pride in highly accurate reports. Reports and numbers you can trust. There is nothing more irritating than going through your monthly reports and having that gnawing gut feeling that things are just “not quite right”. That never happens with our reports.
Starting with accurate, reliable reports, you can shine a light on profit leaks and plug them before they get out of control.
Let us dive into how financial reports can help you keep more of your hard-earned profits…
What Are Profit Leaks?
Profit leaks are those small, sneaky drains on your finances that might seem insignificant at first. Maybe it’s a supplier charging a little more each month, or uncollected invoices piling up.
Over time, these tiny leaks turn into major drains. If you don’t track them, they can seriously cut into your profits. The good news? Financial reports are like a magnifying glass for finding and stopping them in their tracks.
Especially ControllershipPLUS reports that are accurate, reliable, and timely.
The Reports You Need
Not all reports are created equal. Some are perfect for spotting leaks. Here are the key ones to keep an eye on:
- Income Statement (Profit & Loss): This is the big one. It shows all your revenue and expenses. If costs are going up but revenue isn’t, you’ve got a leak. Look for rising expenses that don’t add value, like bloated overhead. Overhead is especially problematic because most overhead costs are fixed and so do not go down when revenue drops.
- Cash Flow Statement: This report shows how money flows in and out of your business. If you are making sales but still struggling with cash flow, you have a problem. Cash leaks here could mean you are paying out more than you should or not collecting money fast enough.
- Budget vs. Actual: Think of this as your business’s reality check. You planned to spend a certain amount on marketing, but somehow it doubled? That’s a leak. This report shows exactly where your actual spending is veering off from the plan.
- Accounts Receivable Aging: If customers aren’t paying you on time, that’s cash you are missing out on. This report helps you track overdue invoices and reminds you which clients need a little nudge to settle up. We use a software for many of our clients to help stay current with our client’s receivables.
Where Leaks Happen
Now that you know what to look for, where do these leaks usually show up? Here are a few of the most common areas:
- Overhead Costs: Office supplies, utilities, rent—overhead costs creep up if you are not watching. Regularly reviewing your overhead expenses helps you find areas to cut back. Can you switch to energy-saving utilities or renegotiate your lease? Every little bit helps.
- Labor Costs: If you are paying out more in wages but not seeing a boost in productivity, that’s a red flag. Maybe some roles are overstaffed, or employees need better training. Tracking labor costs as a percentage of sales will show you where the imbalance is.
- Inventory Management: Holding too much inventory ties up cash that could be better used elsewhere. Not enough? You’re missing out on sales. Keep an eye on your inventory turnover rates to avoid stockpile buildup or missed revenue opportunities.
- Supplier Costs: Suppliers may slowly raise prices over time. If you don’t review these costs regularly, you might end up overpaying. Check your vendor agreements regularly and do not hesitate to negotiate for better deals.
- Operational Inefficiencies: Rising operational costs—like manufacturing, delivery, or logistics—are another common leak. Are there tasks that could be automated or outsourced? Use your cash flow statement to pinpoint where you’re spending too much on day-to-day operations.
How to Plug Profit Leaks
Once you have found the leaks, it is time to plug them. Here is how to take action:
- Set Benchmarks: Use your financial reports to set performance targets for each part of your business. For example, cap overhead at a certain percentage of total revenue. Compare regularly to see if you’re hitting those targets and course-correct if needed.
- Review Regularly: Profit leaks do not fix themselves. Commit to reviewing your key financial reports—income statements, cash flow, budget vs. actual—at least once a month. The earlier you catch a problem, the easier it is to fix. This is why one key deliverable with ControllershipPLUS is having a monthly meeting to go over everything from the past month and year-to-date so course corrections can be taken.
- Use the Right Tools: The best way to stay on top of everything is with the right tech. Cloud-based accounting platforms like Xero let you run reports anytime and from anywhere. They also automate a lot of the reporting process, giving you real-time data so no leak goes unnoticed.
- Involve Your Team: You cannot do it all alone. Share financial reports with your department heads and managers. When they see the data, they can take responsibility for their budgets and help keep costs down. Accountability goes a long way in preventing leaks.
It is Better to Outsource Your Finances Than Do It Yourself
Financial reports are powerful, but digging through them and figuring out what they mean can be time-consuming. That’s where a trusted accounting partner, like ControllershipPLUS comes in. We analyze your reports, spot profit leaks, and give you actionable insights—so you can focus on running your business, while we handle the numbers.
Conclusion – Protect Your Profits
Profit leaks are the hidden enemy of every business, but they do not have to be a fact of life. By using financial reports to keep a close watch on your expenses and revenues, you can spot leaks early and plug them before they grow. The result? A healthier bottom line, smoother operations, and more money in your pocket.
Thanks for reading…
