If you don’t know your 7 Key Numbers, you’re not alone – but almost certainly losing money that you should be pocketing!
The 7 Key Numbers concept is one of the foundational elements of Cash Flow Engineering®. These are the seven specific areas of every business that control your cash flow. They are simple, universal, and yet nearly always overlooked (ask your accountant what they are and you’ll get a blank stare.)
But knowing these seven numbers – and understanding how to use them – unlocks the power to ensure consistent, predictable and sustainable cash flow in your business. So it’s worth a few minutes for you to learn what they are – and to identify YOUR 7 Key Numbers.
Here they are:
Know that you know them, how do you use them? That’s what our company, Cash Flow Engineering, LLC is all about – teaching business owners, entrepreneurs and key managers how to use these tools to increase revenue, control costs, reach higher goals, and build stable, thriving companies with consistent cash flow
We currently offer three levels of engagement, one of which will be perfect for you. Click the links below to learn more about our services and how you can master your cash flow quickly and permanently.
Cash Flow Mastery – Learn on your own through this entry-level online course.
Cash Flow Mastery–Platinum – Advanced course includes monthly webinars, Q&A calls.
The 90-Day Cash Flow Makeover – A 13-week crash course in gaining and maintaining control of your cash flow.
Not sure which course is right for you? Give us a call at 606-416-2078!
Objectives are the stepping stones – the measurable results – that tell you where your are in relation to your vision. While the vision statement expresses where you want to be quantitatively, objectives clarify and quantify the components that will get you to your ultimate goal.
The key to setting meaningful Objectives is to identify goals which are:
Why create measurable objectives?
Measurement leads to obvious insights into what works and what doesn’t, so decisions become easy to make.
Measuring gives you numbers you can trust and that trust turns into confidence about your decisions. Confident decisions lead to rapid profit increases. Confidence also leads to peace of mind. It makes operating your business so much easier, with less stress, less pressure, more clarity and results. However, you should write objectives only for your most important goals – more is NOT better!
And here’s the best part: By creating these metrics you can focus on “finding money from nowhere”. Every business has it, and you will “find” this money by knowing what, when and where to measure in your business. Measuring always releases money, like magic. The more you measure, the more magic you create and the more profit you find.
Cash flow management has three distinct parts – cash coming in, cash going out and use of cash reserves and resources. Managing each of these is achieved through setting up processes in the three primary areas of your business: Marketing & Sales, Operations & Organization, and Financial Controls.
In most businesses the great majority of revenue in generated by attracting buyers and selling your products or services to them. Whether you’re a dentist, a homebuilder or a florist, the business is supported by selling your services to people that need them. So, a great part of cash flow management goes toward managing the processes that generate sales, i.e. revenue. In fact, of the 7 Key Numbers that we use in Cash Flow Engineering, five of them measure marketing and sales activities, and each of those has a series of clearly defined processes to streamline that part of the business:
#1: Number of Leads
#2: Sales Conversion Rate
#3: Customer Retention
#4: Average Transaction
Unless you have well-defined processes in place to manage each of these, your cash flow probably isn’t optimized and you’re losing money.
A cash flow optimized company is perfectly balanced – not too big, i.e. carrying extra weight or overhead for the current need, and but not over-stressing the workforce and resources either. It takes finesse and continual tweaking to keep that balance, particularly during growth cycles. These costs are often the focus of accountants and consultants, and are represented by the last two of the 7 Key Numbers:
#6: Variable Costs
#7: Fixed Costs
While managing costs is important, continual cost-cutting can become counter-productive. Rather, growth comes through expansion, which often means increasing investment in marketing and sales.
Great companies don’t just watch money come in and go out, they have strategies to use their resources to for maximum benefit. Your CPA or financial consultant can be worth their weight in gold if they are helping you discover better ways to use your existing resources to enhance the value of your company. More on this in our next post!
Every successful business owner or leader needs a Vision Statement – a clear, expressed vision of where their business is going. It’s the intended destination, and without it you’ll never be able to measure your progress.
To begin clarifying your Vision Statement, answer these questions in specific, finite terms:
The Vision Statement defines your company’s overall goal and the methods you plan to use to achieve –it’s major products or services, your target market and what you want your organization to ultimately become. Coincidently, you can write vision statements for each division or department. The unifying idea is that each department’s vision supports the master vision of the organization.
Why do you need a Vision Statement? A vision statement will help you:
Yes, your vision statement should motivate you and your employees. So it should include words or phrases that will inspire you and the people that work with you. In the end, your vision statement should empower your entire company to work towards the goals you have set out in the statement itself.
Here’s an easy template that will get you started in developing your Vision Statement. Fill in the blanks in the following sentence:
“Within the next ____ years, grow _________________ (your company name) into a successful _______ (local, regional, national, international, other) $ ______ company, increase our net revenue from ____% to ____% and grow the value of the company to approximately $_________.”
Would you rather have cash flow or profits? There is a dangerous business myth that is costing small businesses billions. This myth is more than just wrong; it actually blinds people to better business practices. The myth is that profits should be your number one concern. Not so. Profitability is just one component of a good business. Cash flow is far more important.
A business can survive a long time without profit, but it can’t survive a day without cash. Yet, most business schools teach that profits are everything. But you can’t put profit in your pocket. Have you ever gone to a grocery store and tried to spend an accounts receivable—who knows when you’ll get paid? You can only put cash in your pocket. And that means focusing on cash flow.
On a smaller level, consider the experiences of two of my clients to help illustrate this point. One owned a small construction business; the other owned a medical device company that was growing pretty quickly. Neither client could understand why their business was showing a profit but didn’t have cash in the bank. As you can imagine, they were frustrated. The problem came from the fact that:
For a real-world example, take Amazon.com. They launched in 1995. They first made profit in 2001. Now their profit is in the BILLIONS. If they’d focused on profit, they’d never have made it where they are today. They got there by managing cash flow.
Think bigger than profit. Think ‘cash first, profit second.’ Profit is a long-term result, but it only comes if cash flow is your short-term obsession.
There are three critical mandates for cash flow:
To be a success, you must know how to collect, track, save, and spend the cash you earn. This is the essence of Cash Flow Engineering.