We are going to show you how to build analytics into your cash flow and use them to navigate your businesses…. with insight.
Imagine you have built a website for your business. This took a long time to build and it is costing you time and money to maintain. So how do you know if it is working for you? How do you know if it is performing at its optimum level? Where is traffic coming from and how engaged your visitors are?
Well, Google made it really easy for you by giving you Google Analytics to help you gather series of data so you can have insight and see clearly what is working and what isn’t.
Similarly, the BMIM Cash Flow tools provide you with the necessary analytics to help you generate more cash, more profit and more business value.
We are discovering that businesses are unaware of their full cash flow picture. They are unaware of how every segment of their business translates into cash flow, profit and business value.
It’s like you are running a business and you just want to side step the reporting and the analytics for your cash flow. Why is this case? Is it due to lack of education or ?
We think that businesses are terrible at cash flow analytics - they either do not know much about it or do not use them at all. And finance softwares are terrible at analytics too – they show you fancy dashboards, but none of them have the right metrics that would actually help you create more cash flow, profit and business value. So there is a big blind spot here.
If you are growing a business, and you cannot tell what happens with your cash flow, profit and business value between, Point A (where you are) and Point B (where you want to be), then you are not really doing yourself a favour. You are making decisions on gut feel and/or incomplete data. You are guessing, rather than being specific about where the problems are.
So analytics are sort of an in-between gap from action to giving you short term answers that tell you where to look.
This kind of segways, very beautifully, into our next point.
Why is it so important for businesses to get a handle on analytics, understand analytics and also begin translating those analytics to their team? Why is that such a big deal?
Because it seems like a lot of the time – your Finance Director might say, “I might eventually do cash flow analytics, but then it’s also passing that back over to the team." Why is this journey so important?
Know where things have gone wrong….no guessing…
What happens when things don’t go the way you expect them to? You’re guessing, right?
I will give you an example. A client of ours kept saying to us "We’ve got cash flow problems, Bibi, working capital problems; we need your help to arrange additional finances for us please!" And it was not until we did the Cash Flow analysis, that we discovered that this business did not have problems with its working capital - their cash cycle was -7 days! The problem was that the sales reps were giving too many discounts to their customers and they were reducing the profit margin, and lowering the cash flow rate.
So it had nothing to do with Working Capital, but Cash flow analytics helped us to solve a sales problem as well as cash flow problem.
Part of the problem is people see all the potential. Cash flow analytics is an interesting thing, people get very excited for about five minutes, because we could find out a lot about the business and then it’s overwhelming. Their reaction is, “I don’t really know where I should start!”
I think a lot of people confuse data with analytics. Analytics is being able to figure out what’s the relationship between those two or three or four metrics. And how we are going to, ultimately, improve it without guessing. And that’s what analytics is, basically removes that blind-guessing. But when we have all of these numbers, it can become a little bit overwhelming.
Focus on closing the gaps you uncover
Pick 2-3 areas to work on. Having a lot of numbers can be overwhelming and when you are trying working on Cash Flow Improvement; you need a sharp focus. Prioritise based on the gaps that you want to close first.
We find that people respond better to visuals. So we use simple colours and graphic representation in our analytics and reporting. You can add colours when you measure the progress in closing of your cash flow gaps.
I think part of the problem is strategy. If you are running a business, you spend a lot of time on the strategy of your business. But you spend zero time, probably, measuring your progress, because, it’s enough work, as it is. It’s a full-time job.
But look at it this way, if you’re running a business and the focus of the business is to make as much money as possible, I would tell you that adding analytics to your cash flow should be your number one objective.
Well, how are you going to fully understand what went wrong, unless you have analytics? I think that analytics is the bridge: “Hey, our cash flow analytics tell us that if we just make this simple adjustment here, we think we can double our cash flow rate…”
Make this process repeatable
I absolutely love that the key step here is to standardise this and make it repeatable. There is nothing better that helping people in your team look at the business in a same way – consistency is a key here.
And we have clients who can’t get a budget to spend £100 on a tool. But they can spend a lot of money on labour.
And then, even getting somebody to put it out there and make it transparent for the rest of the team is almost impossible. And that’s where the consistency and standardisation can really save you.
You automate the reporting and you use analytics in every team meeting. You can review the past period, compare between periods and more importantly make informed decisions. Your team will also be able to see what you are seeing – all of you will be looking at the business in the same way.
And if your business is borrowing money, you can use some of this reporting for your bank manager. Your bank is obsessed with cash flow.
What about the "code of your business": the Money Multiplier for CEOs?
We’ve personally found the Money Multiplier for CEOs an easier way for us and our clients to start thinking about goals, and do strategic projections. And also, it has forced us to start thinking about what our client should measure as well - these are the two or three things that really matter for strategic projections and cash flow improvement, right now.
That was how we started using the Money Multiplier for CEOs with our clients. And again, it was interesting because we’d standardised the strategic projections and the drivers needed to achieve those projections.
The next thing we did, is use the Money Multiplier for CEOs to show our clients how their day-to-day decisions are moving the business in the opposite direction of where they want to go, or in some cases slowing down the journey. For example, a client of ours decided to sell on credit. We used the Money Multiplier for CEOs to show him the effect of their decision on cash flow and profit by the end of the year. We also used the Money Multiplier for CEOs to show them why they should increase the prices (this was a sticking point for them for a number of years).
When you understand the Money Multiplier for CEOs you would have cracked the code of your business – the code for making money and increase business value.
What's next?
Analytics is ultimately going to form probably the next six months of your cash flow improvement activities. Because you’re gonna be able to see how things are working and suggest improvements and make changes.
So, some examples of what your BMIM Cash Flow tools will tell you is one, you pay attention to your Profit only and dismiss all clues your Working Capital is giving you. Also, you are not making as much returns on your capital invested, or you could be making more than you are at the moment.
Another thing you might find is that your intentions might be to expand and grow, but your strategy (the relationship between your net profit and return on assets) is showing that you are contracting, as a business.
The BMIM Cash Flow tools give you a lot of insight about your cash flow, your profit and your business in general. Combine these with our simple processes and you have a good foundation for making more money from your business operations. After all, you are in business to make money.
And you probably have a figure in mind, where you want to get to. Regardless of how high or low this figure is, you could start your work today. And if you are reading this blog you have already done half of the work. That’s a really good news, isn’t it?
Let us know how you are getting on with the use of the BMIM Cash Flow tools and processes and if you are using cash flow analytics at all in your business. Google has Google Analytics, we have BMIM Cash Flow tools. They both help you navigate on your journey to your desired destination.
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