It shouldn’t need to be said but just because something generates revenue you are not necessarily making money.

A good example is Insurance Brokers.

It costs about $300 a year to send out a renewal, handle the paperwork, manage claims and answer phone queries. So you would think that dumping anyone who generates less than $500 would be a no brainer – right.

Wrong. Most brokers hate to part with clients.

There are solutions such as direct links to underwriters and claims services but the lesson is to work out which product lines or parts of your business generate the most profit and focus your energy there.

Over the holiday break I have been rethinking the essential elements of business success.

Although there are many important aspects to running a business I’ve concluded that cash flow is the lifeline of every successful business. Without adequate positive cash flow, even the busiest business can find itself in bankruptcy.

Cash flow is nothing more than the money coming into your business and then going out of it again. If you have more money coming in than is going out, you’re in positive cash flow. However, if you have more money going out (to pay for stock, administration or salaries) than you have coming in, you have negative cash flow.

Far too many business owners are lenient on their debtors, even though they struggle to find enough cash to pay their everyday expenses. Others offer payment terms that often extend to 30 days from the invoice date. This could potentially mean your business is going without that vital cash flow for up to two months from the date of the original sale.

While there might be plenty of sales recorded for that month, how many of those debtors actually pay their invoices on time?

Consider what happens if your creditors demand payment on a seven-day basis. If your own accounts receivable aren’t due to be paid for another 30 days, your business is going to be short when it comes time to pay your own expenses.

So my message to clients is: tighten up on accounts receivable policies and invoice payable deadlines. It will improve your cash flow enormously.

Happy New Year

There’s an old gag line. My favourite thing to make for dinner is … reservations.

If you run a small business, do yourself a favour and jump on the worldwide phenomena of outsourcing.

Let’s take my example. I had permanent employees, a permanent office location, desks, photocopiers, parking spaces and so on. Every single one of these essential business features cost my business money, and a lot of it!

One day I decided I wanted a change. I realised that most of my business needs could be serviced by outsourcing. No more rent, holiday pay for employees, new chairs, desks or even photocopying paper. A little research and I discovered Elance.com, Guru.com, Freelance.com and several other outsourcing sites.

You post your ‘job’ with minimum and maximum payment parameters. The providers then ‘bid’ for you job, and based on their information and payment request you make your decision.

At present, I have a virtual secretary, team of computer experts, graphic designers and writers who are paid for the exact work that they do. Each provider takes care of their own business costs – connection to the Internet, time, electricity and all I am required to pay is the amount agreed on job completion.

Hint:

1. If possible hire locally. It’s difficult to connect to different time zones and cultural understandings, particularly when hiring writers.
2. And check references, especially for big jobs. I like to phone referees. If a potential provider can’t provide a referee then I’m not going to waste my time hiring them