What Should be the Most Critical Focus for Businesses n SMEs post Lockdown?

CASH n CASH FLOW!

Hello friends my name is vishal dhakar and i’m back again with another live stream in this live stream i am seeking one very critical questions for all the business owners and entrepreneurs the question is where is my cash friends please understand that we as entrepreneurs continue to chase sales when we continue to chase sales we find more customers when we

Find more customers customers give us more orders when customers give us more orders we are very happy but when we get more orders from the customers we realize that we have to fulfill those orders to fulfill those orders we need raw material we need the factory to run we need the shop floor on we need people to carry out the operations we need supply chain

Guys to deliver the raw material we need production guys to convert it into finished goods we need the delivery guys again to deliver the finished products to the end customer we need the accounting guys to send invoice to the customer we again need the sales team to follow up and collect for the payment all of this drives cost which means the first learning when

You ask this question where is my cash comes that every incremental sales requires you to have incurring incremental cost when you are incurring incremental cost what is happening is your investment in working capital goes up one you already have monthly overheads which you are incurring irrespective of your level of sales two increase orders requires you to have

Increase inventory if you are trading and increase raw material if you are manufacturing and increase higher if you are service provider of course that is assuming that the next set of orders are coming beyond your capacity third your incremental investment in customers in terms of credit period offered to them also goes up which means that everything requires

Cash to be funding all of this whether you are funding inventory whether you are funding raw material or whether you are funding people please understand that this funding is done by whom the same person who is running behind the customer to get that order that is you as an entrepreneur you are responsible not only to generate sales but also to generate cash to

Service those sales now when you are servicing that sales by increased cost and increase investment in working capital first thing first you need to accept the problem statement that boss for more sales i need to have more cash unless i have a cash budget in place which factors my incremental sales i will never be able to effectively service my customer at the

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Same time we do three classic mistakes right three mistakes of my life is a famous book but these are not those three mistakes that i am talking about the three classic mistakes that we do is we do several mistakes in pricing we fight price war in our mind we think whatever customer is negotiating we should abide by it because customer is god and how can we say

No to god sometimes we hold our price but most of the times we just have 15 seconds on a phone call customer says this is the price if you take this price i will give you the order and we accept so we compromise on margin when we agree to a price that is demanded by the customer so already i’m shaving off my margin so whatever cushion i had of incremental cash

That would have come over and above my cost when this customer would have paid up has gone second is volume customer will always say that this one order is small order next order you please make money this order is a small order so you please give me the best possible quantity discount that you can give but i am not going to order huge quantity even for smaller

Quantity i want the bigger quantity discount that you have to offer and yes also please reduce cash discount also because i am going to make prompt payment he has no problem in making such commitments because he will always say you can earn from me in the next order and every time he says this and ironically most of the business owner every time agree i think we

Need to do some soul searching so what happens is that volume is a second place where we are doing a mistake third mistake is on the credit dealer most of my students my followers my entrepreneur friends they say we offer cash discount as a method of collecting money quicker but our customers are so smart they avail cash discount and then they pay it how do you

Deal with them so that is a third mistake what happens is that when you are suffering from these three mistakes either one two or all the three you have a very little elbow room so far as raising cash is concerned because first of all you have a cc limit every time your sales goes up you dip more into your cc second i may critically question your cc utilization

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Simply because it’s a high cost on demand loan while i agree that you have complete flexibility and you will pay interest only for those many days as you utilize but once you end up utilizing it for full year when was the time when your cc went back to zero or your balance went positive the worst part of using a cc is that you don’t even have a repayment plan

I would say term loan is better because at least you are paying some part of the principal back to the bank and someday it will get over this cc so you are completely depend on that on the bank and every year you have to renew and every year the bank will do arm twisting so point that i’m driving home is that don’t just chase customers and sales without having

Proper cash planning how do you plan for cash it is very important that you plan your cash flows properly in such a way that you have enough cushion that whenever your sales trend is going to go up you will consciously have a negative cash but you know where the negative cash is coming from you know what is the cost of that cash and you have adequately factored

The cost of getting that cash in the total cost of the product or service that you are selling to your customer and hence you will be able to arrive at a price which will be scientifically profitable for you otherwise if you don’t enjoy enough margins in your product and there is a hidden uh cost of raising cash for servicing this customer then you are giving

A gift to the customer why because you are giving away something at a price which you can’t afford to give to the customer every time and customers are very smart they will always benchmark the last order the last price and say last time to it why can’t you give it now for the same rate so we need to understand that unless we have a holistic understanding of

What is our total cost of servicing the customer point one point to how much money is needed before the customer actually pays up and for how many days unless we have a proper plan in place to do these two things i think we are shooting in dark and we are taking too much of uncalculated risk what we need to do is we need to fit in our calculations how do you

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Fit in calculations very simply you should make a pnl account and list down your total cost second you need to look at the working capital and your incremental investment in working capital to identify cash requirements at each level of sales once you are able to identify that how much money is getting blocked in your working capital and how this incremental

Increase in working capital will lead to increase in interest cost or opportunity cost if you are putting your own money gets factored into your profit margin once you have that cost recovery also happening you need to arrive at a minimum price below which you cannot do business because otherwise then you will start suffering cash losses which is not good for

Business at all so to summarize ladies and gentlemen cash flow planning is extremely critical for every growing business and let me tell you cost away cash has any which was become most important and when your customers come back roaring to you because now once the vaccination drive is completely over and everybody is vaccinated and hopefully when the world goes

Back to normal you will see all your old customers coming back with full force when the customers come back don’t forget to smile at them but at the same time before they come back make sure that you have done adequate cash flow planning to service those customers so that you don’t have to regret either in volume or your margins at a later date this is all what

I wanted to say in today’s live stream for those of you who are still slightly disappointed that all right vishal you never told me how can i do cash flow planning there is another pre-recorded video on my youtube channel which you can see where i am discussing four key strategies of restarting the business after coming that is where you will find the answer to

This and if somebody requires still more detailed answer join me tomorrow at 11 am on msmex platform where i am doing a detailed 90 minute webinar on where is my cash so this was a precursor to my 90 minute webinar that is happening tomorrow saturday at 11 a.m on 24th of july please block the date and i’m looking forward to seeing you all tomorrow at 11am till

Then this is cm michelle signing off have a positive cash flow day bye

Transcribed from video
What Should be the Most Critical Focus for Businesses n SMEs post Lockdown? By Finance TubeliveBroadcastDetails{isLiveNowfalsestartTimestamp2021-07-23T113345+0000endTimestamp2021-07-23T114546+0000}

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