Over the next few weeks I will be discussing a topic that involves the
systems that affect and keep your business flowing. Author Peter Sange provides a great example of a systemic system and just how much it can affect your business in his book, The Fifth Discipline.
Peter uses an example of a beer that was featured in a music video, the beer was seen by thousands of people, and sales and demand for that beer shot up. The store owners increase their orders of the beer and distributors work to meet the demand. Before long, the warehouse runs out of inventory and eventually the manufacturer has, due to the demand, sold through their inventory and have increased invoices, as orders shoot up. The process, from the time the beer is seen in the video until the time the manufacturer can catch up with the demand could take up to 6-9 weeks, and by the time stores can stock enough, the demand has dropped, consumers have moved onto something else, and the increase of production hass led to an overproduction.
Sanges' scenario asks the question and challenges business owners to determine, what creates the caterpillar effect of peaks and falls in your business? Do you know why?
The rubber meets the road in cash flow management. If your business is like mine where you meet the needs of clients, when do you bill them? Are they billed when you see them? Are they billed at the beginning of the month? Let's say, for example, that you bill all clients once a month and you bill at the end of the month. If you experience a slow month, let's say Decemeber was slow, January was a regular workload, but all the money you billed in Jan doesn’t come in until February, then your cash flow stinks. In January when your bills are due and your employees need to be paid, you have a problem, because you won’t have money until February. Your goal, as a business owner is to figure out how to work that out? My suggestion is that you bill more frequently, especially if once a month billing leaves you struggling.
Aside from being able to make the payments on your bills and being able to pay your staff, you will see the reflection of your hard work in your account. When you work hard and you don’t see the payoff in your bank account, you can be discouraged. Don’t set yourself up for a long lag time, a long time between performing service and getting paid for the service, it makes you feel like crap. Emotional problems, like feeling overwhelemed and having your work suffer and systemic system problems occur when you don't get paid in a reasonable time. Afterall, every client and customer who experinces your company does so in a more consistent manner when your systems flow well and your money comes at the right time. Not controlling the workflow gives your company a bad reputation. Figure out the systemic systems that affect your business and locate where the breakdowns or low points occur so that you can address them.