Just about every business I know has cash flow challenges. Whether those challenges are continual…
How Accountability Increases Cash Flow and Profit
I’ve recently been working on my online advertising and writing sales copy for my business. I was pleased with what I’d done and thought that I’d done a pretty good job. That was until someone from outside my business pointed out some major issues with the sales copy. That set me to thinking about how when we’re so involved in our business we just can’t see the forest for the trees.
The same applies to business cash flow and profit and key numbers in our businesses. We’re just too close to what is going on to see what is really happening. That and being far too busy and not making the time to look at the numbers.
But what exactly is accountability? Accountability is defined by the Cambridge English Dictionary as, “someone who is accountable is completely responsible for what they do and must be able to give a satisfactory reason for it.” At BusinessDictionary.com the definition is, “The obligation of an individual… to account for its activities, accept responsibility for them and to disclose the results in a transparent manner.”
My interpretation of those definitions is that accountability is fundamentally about responsibility. But to me accountability is so much more than that. Accountability is about having a confidante to share your goals and dreams for your business, someone who will help determine your course of action to achieve the goals and then hold you responsible for taking action.
Accountability is about regular check-ins to see how you’re progressing and providing support, encouragement, suggestions and advice to help you along the way. Part of accountability is also having someone from outside your business look through the forest to see the trees and point out the obvious issues that you just can’t see as you’re too close to the business.
One of the keys to success in accountability is to set goals, SMART goals. Ones that are specific, measurable, achievable, realistic and time based. To be specific and measurable, most SMART goals require numbers. And that’s where we start to talk about revenue targets, profit goals and cash flow forecasts.
A couple of years ago, Alan came to seek my help with his IT business. He was struggling to pay the bills even though he had a solid base of clients and regular income. By setting SMART goals and having monthly accountability reviews, Alan was able to pay off his outstanding bills. He increased his revenue with new clients and after 12 months had six weeks of overhead costs in the bank account. He was no longer lurching from one bill payment to the next, worrying about how he would pay the Australian Taxation Office (ATO) and staff wages.
Alan decided once he had a comfortable cash balance in his bank account that he could take an increase in wages for himself, whilst still maintaining a healthy bank balance. This was a significant change from the previous couple of years where he had been chasing his tail, robbing Peter to pay Paul and effectively going around in circles with no improvement to his profit or cash flow.
Over the 12 months, we identified costs that either weren’t essential to the business or which weren’t giving any return (eg. marketing costs that weren’t generating income) and eliminated them. He also found alternative suppliers who offered better pricing which further reduced his costs. But it wasn’t just about reducing costs, it was about running an efficient lean business that gave him the foundations to grow his revenue without affecting customer service or product delivery.
From feeling stressed and worried about whether his business would survive whilst at the same time knowing deep down that he had a good business with services that were in demand to create a profitable business that he was proud of, Alan knew that he had to change what he was doing and seek outside help. He knew that he didn’t have the skills he needed and that a fresh set of eyes would help him through the challenging times he had been going through.
Have a good hard look at your business. Can you see the forest for the trees? I believe that every business should have an accountability system in place to look into the business from the outside and help set the goals and action steps and provide accountability to help you achieve your goals.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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