It’s the little things that kill your cash flow

As we are moving to a new accountant I have been reviewing our P&L for the last few years and the expenses we have incurred. Most of the time we have spent in line with our revenues and made some marketing investments that have paid off in the long term. However, what I have noticed is that there were not alot of “big” expenses (not including payroll) but it was A TON of little expenses that each month really added up.

Running your business day to day you quickly come to realize that cash flow is king and without it you are nowhere.

As a small business or startup it is hard to budget because there are so many expenses that come up and you are always looking a new ways to market and develop new business opportunities.

So what is the conclusion? The little expenses are what can kill your business. The $5 subscription fee here, the $40 lunch meetings there, the $25 Fedex bill when you could have just mailed it. This stuff adds up quick and I will bet that if you looked at your credit card bills you will know exactly what I am talking about.

So is there a solution? Yes. Each business must find its own “cost management model”.

To get some good ideas, we have instituted this year (in year 3) three different cash flow projection models with our accountant.

Basic Spend Model
This model is where look at our fixed costs and do cash flow projections for 12 months instead. We only include current closed business with an expectation of net 30 receivables and fixed expenses that we know must be paid. Our goal is a 30% cash margin each month. This way we will know that there will be enough cash to cover our basic expenses for a year.

Advanced Spend Model
As with the basic spend model we took our fixed costs and cash flow projections for 12 months but we add in additional expenses to see how long our current business development efforts could be supported by our current cash flow intake. Our goal here is a 10% margin per month. This way we could pick up the pace with spending a little more on the expenses but not go crazy and still have money to cover our expenses for a year.

Aggressive Spend Model
This one is a bit different and looks out 6 months with increasing marketing investment to aggressively go after new business. This includes increased marketing spending and some slush funds for unpredictable expenses by the sales and marketing departments. This incorporates forecasted business closed by the team so we can get an understanding of marketing ROI and how much we could grow if we went the aggressive route.

But in the end it is the little things can kill your cash flow so implement a measurement model that works for you.