John Briggs explains why loans and credit cards worsen cash flow problems and offers a three-step fix: find the root cause by reviewing pricing and marketing ROI, audit expenses ruthlessly, then use Profit First to build reserves. Profit is a deliberate choice, not what's left over.
When cash flow is tight, do you find yourself putting a band-aid on the symptom instead of trying to find the root cause, trying to dig a little bit deeper? When cash flow is tight, this could be from a variety of reasons. It could be simply from inflation. Your cost of expenses have increased, but maybe as a small business owner, you haven't raised your prices yet, or you're unwilling to raise your prices because you think You're going to price yourself out of your community. That could be a reason why cash flow is tight. Maybe your marketing efforts aren't resulting in the same dollar cost per new client, if that makes sense. If I'm spending $1,000 a month and that usually is getting me, say, 1,000 clients, that's $1 per client. But maybe if I only got 500 new clients out of the 1,000, that's $2 per client that I spent. And so maybe our marketing efforts are not as efficient. That could lead to increased cash flow. Did something happen with our service and we are losing clients faster than what has been the norm? Anyways, there's a variety of reasons why we could have a short cash flow. And oftentimes the 2 common area— common responses from the small businesses I'm gonna take out money in a loan, whether that's directly at a bank, line of credit on the house, or simply increasing your credit card balance by putting charges on the credit card but not paying it off. All of those are forms of borrowing money, which then increases the interest expense that you have to pay, increases your cash requirement that you have to pay, because the bigger the loan, the larger the monthly payment. Or they let go of team members And work the extra hours themselves covering the job that that team member was doing. Look, those are short-term options, but they, they're not the best options. And that's one of the reasons why we love Profit First is because it allows you to manage your cash in a way so that you do have a reserve of cash to call upon in these scenarios so that you can get through the short-term period while you take the time. to dig deeper. Those reasons that I gave, you would dig deeper and you would potentially find out, yeah, maybe this marketing method I've been using isn't working the same way. Maybe the copy is stale. Could be as simple as the image I'm using, but you want to dig deeper. If there's a— something happened in your service offering and you're losing clients faster than normal, you would dig deeper. What's the issue here? At the end of the year, any time is good, but specifically if you don't do it throughout the rest of the year, at the end of every year, taking time to look through all your expenses, identifying things that maybe aren't necessary, they're not helping you get new clients or keep clients, cut those expenses out. It's a great time to clean shop, if you will. One of our team members had spent the last couple days deep cleaning their house physically, and she made a comment saying cleaning is therapy. It's the same thing financially. Clean up your unnecessary expenses. It's a form of therapy. You're going to feel great. You're going to feel lighter. But don't just look for a short-term fix of borrowing money or letting go of team members because you're willing to work more hours. Look for the deeper issue and solve that. And more importantly, also run the Profit First system so that if you do have a short-term cash crunch, you can weather that storm. Remember, profit is a choice. Have the courage and wisdom to choose it.
