Three Ways to Maximize Your Company's Cash-flow and Profit Margin

Hey guys. Matt Paulfsen here in this video, I want to talk about protecting your company's cash flow and profit margins. So when you're going into business, your goal at the end of the day is to be able to take money home from your company so that you have an income to provide for your family, to save for the future, to give to charities and do whatever you do. Whatever else you might want to do with money outside of your business, your goal isn't actually to maximize your company's revenue. Because having a ton of revenue doesn't really do anything for you unless if all of your operating expenses consume all of that revenue and you have no profit margin. So revenue by itself without a profit margin, that doesn't do anything for you. Your goal might not even be profit because you can have a profit on paper. You might not actually have any money to take home at the end of the day because your clients are slow paying their bills or you've given them 90 day terms. Really what you are optimizing for in your business is cash flow and your profit margin. So how much cash am I bringing in into the business for my customers? And then how much of that cash can I take home from the business in the form of profit? So I've got a few tips that will help maximize your company's cash flow and profit margin so that you can take home more money from your business. First, be really wary about signing up for subscriptions and recurring monthly payments. These things really sneak up on you and eventually they just add up to be thousands of dollars a month. You know when you're signing up for a subscription, you're basically committing to buy something every single month without thinking about it or deciding that you want to keep paying for that thing every month until you consciously decide to cancel. You're basically putting a purchase on Autopilot. So it's just really easy to let these things slip and then you'll find out you've been paying for a service that you haven't used in over a year. It's really easy to think when you're signing up for something that's like, oh, it's just 20 bucks a month or a hundred dollars a month and I'll get this cool tool. I can totally afford that. These things really add up over time and it's pretty rare that they ever go away because once they get ingrained into your business, it's just easier to keep paying that $20 a month or $100 a month than to get rid of them. I actually Just recently went through all of marketbeats recurring subscriptions and I noticed that I was still paying $294 a month for a web server that I thought I had canceled four months ago and actually forgot to cancel. So that's $1,200 down the drain that is not going to come back. So just be careful when you are signing up for recurring payments, subscriptions, anything like that. Make sure that you actually need them and then regularly review them and cancel the things that you're not using and don't really need. The second tip I have is that don't assume that spending money is the solution to your business problems. In my company we use a lot of technology and cloud infrastructure services like web hosting accounts, email service providers, data feeds, SMS delivery, all that kind of stuff. This infrastructure stuff adds up to more than $10,000 a month in recurring expenses. It might actually be closer to 15 now, but I always try to think whenever something like this comes up that we're going to have to pay for. Say we're looking for a new data feed or a new service for our business. Sometimes we'll find a way to accomplish our goal or get the information we need without paying for a monthly recurring service. Sometimes we end up building a service ourselves or we'll make a non cash deal or trade our data with somebody else's data to get what we need for free. You can usually solve a lot of problems with money in your business, but sometimes, even if it's a little bit more work and you have to think about it a little bit longer, it's often better just to say, okay, let's assume we can't pay anybody anything to solve this problem. How do we solve this problem ourselves with just our own time and our own mental energy and whatever resources we have in house. It's easy to pay for stuff, but those things do add up over time and end up biting you in the butt. So I always just think how can I solve whatever problem I have, maybe without spending any money and just how can I do it with the resources that I have already? A third tip I have to maximize your cash flow and your profit margin is to not give generous terms to your clients. So if you work with big companies, they might ask you to give them a 60 day, a 90 day or even 120 day payment terms for the work that you do. This basically means that they want to wait three or four months to pay you after you do work for them. So you might have work for them done on January 1st that means they want to wait until April 1st or May 1st to pay you. So basically they're asking you for a 90 day or 120 day interest free loan from you on the amount of their bill. You should be really hesitant to say yes to this because at most the people that you have to pay, your vendors, the services you're paying for, you're going to get 30 day terms max on anything that you do. So you don't want to be paying for expenses that your clients or your customers generate that you're not going to get paid for 90 days and you have to pay them in 30 days. That just eats up your cash flow. If you're growing rapidly, it could even put you out of business. Because if you're paying for a ton of expenses for your customers that aren't going to pay you for 90 days and you've got to pay those expenses 30 days from now, you could have massive expenses and just the revenue hasn't come in yet to pay for them. There are businesses that have gone out of business for growing too fast and too rapidly and not having the cash flow coming in right away. So if you have 30 days to pay your vendors, make sure that your clients are paying you in of terms 30 days as well. So those are kind of three simple tips I have. One, be cognizant of subscriptions and recurring revenue or recurring payments that you're making. Be very hesitant to sign up for them and just review them regularly. Second, try to find ways to solve problems without spending money. And then third, just be careful on the terms that you give to your customers, your payment terms, and make sure that the payment terms you're getting are match the payment terms that you're giving. So hopefully you find these three tips helpful. If you've got other ideas to maximize cash flow and your profit margin, I'd love to hear them. Feel free to post any ideas you have in the comments below. Thanks guys.