Ever wondered about the silent killers of profit and cash flow? In a recent chat with Mike Milan (Cash Flow Mike), we explored mismatched financing and high-interest payments that can quietly wreak havoc on your bottom line. Remember, 35% of businesses filing for bankruptcy have net profit. Focus on cash flow management to safeguard your business’ financial health.
In this episode, Mike and I discuss:
- Difference between profit and cash flow
- Challenges of managing cash flow in businesses that rely on insurance payments
- Importance of understanding the financial gap between making a sale and getting paid
- Significance of small changes in cash flow management
- Need to speak in terms of dollars rather than percentages
- Importance of providing bite-sized, consumable chunks of information to busy business owners
- Managing workload for service providers after a certain number of jobs
- Silent killers to profit and cash flow, such as mismatched financing and high interest payments
- Focusing on cash flow to prevent financial failure
- Importance of understanding the concept of the financial gap and keeping it small to avoid cash flow problems
- Tracking expenses and using technology to improve efficiency
- Differentiating between fixed and variable costs when calculating the cost of goods sold
- Analyzing advertising mediums to determine effectiveness
- Mike’s programs and services for learning more about cash flow management
The key moments in this episode are:
- [00:03:18] – The difference between profit and cash flow
- [00:04:24] – The financial gap between making a sale and getting paid
- [00:08:28] – The significance of small changes in cash flow management
- [00:10:20] – The importance of simple moves in business
- [00:11:30] – Challenges of managing cash flow in home service businesses
- [00:14:16] – The correlation between inventory and cash flow
- [00:19:39] – The importance of accounting for extra hours
- [00:20:27] – Silent killers to profit and cash flow
- [00:20:47] – Mismatch financing and its impact on cash flow
- [00:29:12] – Financial Gap and Cash Flow Challenges
- [00:32:00] – Inventory Management and the Importance of Moving Inventory
- [00:36:59] – Accounting for Administrative Time and Unproductive Time
- [00:39:30] – The importance of tracking expenses with GPS
- [00:42:16] – Differentiating fixed and variable costs in cost of goods sold
- [00:44:12] – Analyzing advertising effectiveness
“That is money just going stagnant, especially if it’s sitting out there in the weather. In your area, you’ve got the sun beating down on it, in my area we may have the sun, we may have rain, snow, ice on it, and pretty soon it’s worth nothing, right? Because the weather has damaged it, and they didn’t even realize that money was leaking out in profit and in cash flow.” Mike Milan
The Clear Path to Cash: A Game Changer
I was so impressed with Mike’s program that I decided to get certified in it. What sets it apart is its simplicity. Unlike other coaches who have a lengthy process, Mike’s program is like a game of “name that tune” for businesses. He can fix a business in three moves, and I claim I can do it in two.
The Importance of Managing Workload and Inventory
During our conversation, Mike shared a story about a landscape contractor who struggled with cash flow because he was juggling more jobs than he could handle effectively. This resonated with me as I’ve seen many service providers struggle with managing their workload after a certain number of jobs. We also touched upon the concept of inventory management and how carrying excess inventory can tie up cash that could be used elsewhere in the business.
Planning for the Unforeseen and Protecting Cash Flow
Mike emphasized the importance of planning for only 75 to 80% of a person’s time, as unforeseen circumstances can affect productivity. We also discussed the concept of silent killers to profit and cash flow, such as mismatched financing and high interest payments.
The Financial Gap: A Key Concept in Cash Flow Management
Mike shared a compelling story about a company that almost went bankrupt due to cash flow issues. The company would receive orders from big retailers like Costco and Target, but it took them 90 to 120 days to pay. This highlighted the importance of understanding the concept of the financial gap, which refers to the time it takes to receive payment after making a sale.
Leveraging Technology for Efficiency
We also discussed the importance of tracking expenses and using technology to improve efficiency. For instance, implementing GPS tracking in company vehicles helped reduce unnecessary trips and cut down on gas expenses.
Understanding Fixed and Variable Costs
Mike explained that a fixed cost is one that must be paid regardless of sales, while a variable cost is directly tied to a sale. This understanding is crucial when calculating the cost of goods sold.
About Mike Milan
Mike Milan, AKA Cash Flow Mike, offers expertise in strategic planning, finance, and sales gained over 20+ years of diverse professional experience. In that time, he has developed 14 startups into well-established businesses and earned his nickname “Cash Flow Mike”. Mike is an army Veteran and an MBA from Baylor University and mostly known for:
Being the author of two books: The 7 Minute Conversation, and Don’t Be A DUMB Business Owner – both focused on using the financial statements to find hidden cash in your business.
He created a financial management training program called The Clear Path To Cash – Its 8 Lessons to Maximizing Cash in Any Given Business Situation.
He has also created several FinTech software products like: CashFlowTool, Finagraph, and Path by Simplex.
Mike is also a co-host on the podcast Mike & Blaine – where the focus is on topics and lessons you can only learn by being an entrepreneur.
Currently Mike is the business financial specialist behind the brand Cash Flow Mike, where he has a host of ways to help business owners get grow and keep more cash in their business.
Connect with Mike: