7 Deadly Cashflow Sins

This is the question that virtually every small business owner I’ve ever worked with has asked me. Either directly or indirectly. This lack of understanding around “where’s all the cash”, leads them to feeling in the dark about their numbers overall.

In this article we’ll explore SERPICO, which is the acronym for The 7 Deadly Cashflow Sins.

Around 40% of all small businesses go bust in their first year and 80% within 5 years and that trend is pretty global.

Understanding SERPICO is designed to help you not only survive but also thrive.

But before we dive into SERPICO, let’s first look at the foundation you need to set yourself up for great cash and profit in your business.

That foundation is up to date, accurate financial record keeping.

If your bookkeeping is not up to date, and by up to date I mean weekly, this is your number 1 job.

Trust me now & believe me later, without this you’re flying blind whereas you need to be in the driver’s seat to run a successful business.

Think of “great cash and profit” as your business heartbeat. If you’re flying blind around your numbers, you’re headed for a heart attack. I see it all the time.

1.   You fall behind on the books

2.    You have no “optics” (eyes) on your numbers

3.    You don’t actually know how your business is “performing” (profit and cash are the yardstick on which to measure your business performance

4.    You make all your decisions by looking at your bank account

5.    You don’t know or realise you’re running up obligations (taxes, staff entitlements and more) because you’re running the business on the bank account

6.    Eventually you are  forced to “reconcile” the books and business mess & face up to everything

7.    Lastly, you’ve gone broke without even realising – we call this “going broke doing business”

If you are behind on your bookkeeping here’s an article to help you get caught up.

SERPICO stands for sales, expenses, receivables, payables, inventory, cash and owner drawings.

The 1st deadly cashflow sin is having a poor (or no) pricing system in place around “Sales”.

You can increase your profit and cash by making more sales but you must make sure you’ve created a smart, strategic, industry relevant pricing system. A solid pricing system is well known as a leading pillar for business success.

The 2nd deadly cashflow sin is failing to pay attention to your numbers and minimise costs (expenses).

Reducing expenses is a smart way to improve profit and cash. Just an hour in the numbers can yield incredible results. In fact, we find that first hour in the numbers to be where we get the biggest wins. And then month by month after that, we continue to get the little wins. Reduce your expenses in a strategic way and you will pull more profit and cash out of your business.

The 3rd deadly cash flow sin is poor receivables management.

This sin occurs when “your customers pay you after you pay your staff and supplies” which in turn creates cashflow pressure.

The 4th deadly cash flow sin is poor payables management.

This sin occurs when you “pay your staff and suppliers before you receive money from your customers’ which again, creates cashflow pressure.

The 5th deadly cashflow sin is poor inventory days.

This sin occurs when you “pay for stock after you receive money from your customers”.

Whether you are committing this deadly cashflow sin is all about how long your stock sits on the shelf or in the warehouse before it sells. This is also known as “stock turnover”.

The 6th deadly cashflow sin is “running your business on the bank account”.

Many business owners have the misconception that the bank account tells them about their business performance but it does not. 

They tend to look at their bank and if there is money in there they assume that means their business is thriving and that they can spend that money.

“the cash in the bank is not a reflection of profit”

The 7th deadly cashflow sin is taking more owner drawings than available.

This one ties into “running the business on the bank account”.

Your profit and loss does not “show” your drawings (they’re on the balance sheet)

Therefore you can’t see them when you review your profit and loss.

Remember your cash at bank isn’t a reflection of profit and so you can easily overdraw and still have money in the bank (because the money in the bank is also for tax, GST, superannuation, suppliers etc).

So there you have it. The 7 Deadly Cashflow Sins. Now that you’re aware of them, what will you do about them?

There are 3 A’s to change:

Awareness

Acceptance

Action

If you would like to get in touch with us and talk about your business cashflow, strategic bookkeeping or anything else I’d encourage you to book a discovery call here

And here’s 3 tools that will help you take the action you need to get cashed up, optimise your profit and build your dream business and life.

FREE Business Health check

FREE 1300 call

Fresh Eyes Data File Health check

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