Understanding the pulse of your business

 

It is often said that topline is vanity, bottomline is sanity but cash-flow is reality!  All of us are always owed by companies that pay their employees, vendors on time. But we seldom try and understand how these companies have created a disciplined system to manage their profitability and cashflow. If profitability is the heartbeat that keeps your business throbbing, cash-flow is the blood flowing through the veins of the organization. It is extremely important for businesses, big or small, to manage these two parameters well in order to grow, sustain and lead in their domain. No matter what business you are into, it just takes simple, logical systems and a disciplined effort to manage your cash well. There are two aspects, in particular, which the mid-sized businesses need to keep in mind to stay on the positive side of cash-flow and profitability:

Managing profitability - Why your customer is paying you?

Most businesses know - what their customer is paying them for, but not necessarily why he/she is paying? There is a difference. Even if your product is the same, every customer has his own reasons to pay for it. For example, if you own a taxi fleet there is difference in pricing for your corporate clients and individual customers. This happens because the value of the same taxi and same driver is different for different customers. While a multi-national corporate customer might not mind paying more for a taxi that is available on time with full tank and a driver dressed in clean uniform, a family that wants to make a personal trip to some tourist location will pay relatively less for the same things. It is important for businesses to understand the differences in the value of product or service with respect to the customer to enhance the profitability. Profitability will be easy to achieve once you know why your customers are paying you.

Managing Cash-flow - When your customer is paying you?

The second and more ignored aspect is analyzing the pattern in which your customer is paying you. Taking the earlier example of a taxi fleet owner, an MNC corporate customer might pay at the end of every month, while the individual might pay in cash at the end of the trip.