All posts by Jeff Prager

What are YOUR 7 Key Numbers?

If you don’t know your 7 Key Numbers, you’re not alone – but almost certainly losing money that you should be pocketing!

The 7 Key Numbers concept is one of the foundational elements of Cash Flow Engineering®. These are the seven specific areas of every business that control your cash flow. They are simple, universal, and yet nearly always overlooked (ask your accountant what they are and you’ll get a blank stare.)

But knowing these seven numbers – and understanding how to use them – unlocks the power to ensure consistent, predictable and sustainable cash flow in your business. So it’s worth a few minutes for you to learn what they are – and to identify YOUR 7 Key Numbers.

Here they are:

  • #1: Number of leads The 7 Key Numbers that drive cash flow.
    For measuring your marketing effectiveness
  • #2: Sales conversion rate
    For measuring your sales effectiveness
  • #3: Customer retention rate
    For driving long-term customer value
  • #4: Number of transactions per customer
    For driving cash flow and repeat business
  • #5: Average price per transaction
    For driving cash flow and boosting margins
  • #6: Variable costs
    For managing your production expenditures
  • #7: Fixed costs
    For managing your overhead and efficiencies

Know that you know them, how do you use them? That’s what our company, Cash Flow Engineering, LLC is all about – teaching business owners, entrepreneurs and key managers how to use these tools to increase revenue, control costs, reach higher goals, and build stable, thriving companies with consistent cash flow

We currently offer three levels of engagement, one of which will be perfect for you. Click the links below to learn more about our services and how you can master your cash flow quickly and permanently.

Cash Flow Mastery –  Learn on your own through this entry-level online course.

Cash Flow Mastery–Platinum – Advanced course includes monthly webinars, Q&A calls.

The 90-Day Cash Flow Makeover – A 13-week crash course in gaining and maintaining control of your cash flow.

Not sure which course is right for you? Give us a call at 606-416-2078!

How Measurable Objectives Increase Cashflow

Having set objectives automatically improves cash flowObjectives are the stepping stones – the measurable results – that tell you where your are in relation to your vision. While the vision statement expresses where you want to be quantitatively, objectives clarify and quantify the components that will get you to your ultimate goal.

The key to setting meaningful Objectives is to identify goals which are:

  • Critical to your success (I.e. Revenues, costs, net income, productivity, project profitability per FTE, net Income per FTE)
  • Can be graphed and allows relevant and real comparisons
  • Can be easily tracked (Easily tracked = data is readily available & the specific target can be counted or MEASURED)
  • Have a specific achievement date
  • Must be improved over time to improve your performance

Why create measurable objectives?

  • As a basis for performance reviews; gives teams, individuals and the entire company specific targets
  • Measure effectiveness of strategies necessary to achieve stockholder objectives
  • Identify areas required for improvement
  • Allow performance tracking which is meaningful and timely
  • Show progress in relation to the vision statement
  • Establish a framework for accountability and incentive pay
  • Minimize subjectivity and emotionalism

Measurement leads to obvious insights into what works and what doesn’t, so decisions become easy to make.

Measuring gives you numbers you can trust and that trust turns into confidence about your decisions. Confident decisions lead to rapid profit increases. Confidence also leads to peace of mind. It makes operating your business so much easier, with less stress, less pressure, more clarity and results. However, you should write objectives only for your most important goals – more is NOT better!

And here’s the best part: By creating these metrics you can focus on “finding money from nowhere”. Every business has it, and you will “find” this money by knowing what, when and where to measure in your business. Measuring always releases money, like magic. The more you measure, the more magic you create and the more profit you find.

Three Primary Areas of Business

three primary areas of businessCash flow management has three distinct parts – cash coming in, cash going out and use of cash reserves and resources. Managing each of these is achieved through setting up processes in the three primary areas of your business: Marketing & Sales, Operations & Organization, and Financial Controls.

Marketing & Sales

In most businesses the great majority of revenue in generated by attracting buyers and selling your products or services to them. Whether you’re a dentist, a homebuilder or a florist, the business is supported by selling your services to people that need them. So, a great part of cash flow management goes toward managing the processes that generate sales, i.e. revenue. In fact, of the 7 Key Numbers that we use in Cash Flow Engineering, five of them measure marketing and sales activities, and each of those has a series of clearly defined processes to streamline that part of the business:

#1: Number of Leads

#2: Sales Conversion Rate

#3: Customer Retention

#4: Average Transaction

#5: Pricing

Unless you have well-defined processes in place to manage each of these, your cash flow probably isn’t optimized and you’re losing money.

Operations & Organization

A cash flow optimized company is perfectly balanced – not too big, i.e. carrying extra weight or overhead for the current need, and but not over-stressing the workforce and resources either. It takes finesse and continual tweaking to keep that balance, particularly during growth cycles. These costs are often the focus of accountants and consultants, and are represented by the last two of the 7 Key Numbers:

#6: Variable Costs

#7: Fixed Costs

While managing costs is important, continual cost-cutting can become counter-productive. Rather, growth comes through expansion, which often means increasing investment in marketing and sales.

Financial Control

Great companies don’t just watch money come in and go out, they have strategies to use their resources to for maximum benefit. Your CPA or financial consultant can be worth their weight in gold if they are helping you discover better ways to use your existing resources to enhance the value of your company. More on this in our next post!

How To Write A Vision Statement

Write a Vision Statement to unify your company toward growth.Every successful business owner or leader needs a Vision Statement – a clear, expressed vision of where their business is going. It’s the intended destination, and without it you’ll never be able to measure your progress.

To begin clarifying your Vision Statement, answer these questions in specific, finite terms:

  • What do you want your company to become?
  • Where do you want it to go?
  • How big do you want it to grow?
  • What market do you want it to serve?
  • What do you want to produce or provide in order to make all that happen?

The Vision Statement defines your company’s overall goal and the methods you plan to use to achieve –it’s major products or services, your target market and what you want your organization to ultimately become. Coincidently, you can write vision statements for each division or department. The unifying idea is that each department’s vision supports the master vision of the organization.

Why do you need a Vision Statement? A vision statement will help you:

  • Stay focused on your main goals and ambitions and avoid distractions;
  • Keep clear in mind the ideal outcome of your endeavors and what you are striving to accomplish
  • Provide employees and potential investors with information on how far you expect your company to go
  • Provide inspiration and motivation through challenges.

Yes, your vision statement should motivate you and your employees. So it should include words or phrases that will inspire you and the people that work with you. In the end, your vision statement should empower your entire company to work towards the goals you have set out in the statement itself.

Here’s an easy template that will get you started in developing your Vision Statement. Fill in the blanks in the following sentence:

“Within the next ____ years, grow _________________ (your company name) into a successful _______ (local, regional, national, international, other) $ ______ company, increase our net revenue from ____% to ____% and grow the value of the company to approximately $_________.”

The Value of Cash Flow over Profits

Would you rather have cash flow or profits?  There is a dangerous business myth that is costing small businesses billions. This myth is more than just wrong; it actually blinds people to better business practices. The myth is that profits should be your number one concern. Not so. Profitability is just one component of a good business. Cash flow is far more important.

Profits are just a piece of the cash flow puzzle.A business can survive a long time without profit, but it can’t survive a day without cash. Yet, most business schools teach that profits are everything. But you can’t put profit in your pocket. Have you ever gone to a grocery store and tried to spend an accounts receivable—who knows when you’ll get paid? You can only put cash in your pocket. And that means focusing on cash flow.

On a smaller level, consider the experiences of two of my clients to help illustrate this point. One owned a small construction business; the other owned a medical device company that was growing pretty quickly. Neither client could understand why their business was showing a profit but didn’t have cash in the bank. As you can imagine, they were frustrated.   The problem came from the fact that:

  • Rapid growth creates a need to support growth and more capital (see the cash cycle below.)
  • Large volume means a need for more front-end money and also turnover ratios tend to decline.

For a real-world example, take Amazon.com. They launched in 1995. They first made profit in 2001. Now their profit is in the BILLIONS. If they’d focused on profit, they’d never have made it where they are today. They got there by managing cash flow.

Think bigger than profit. Think ‘cash first, profit second.’ Profit is a long-term result, but it only comes if cash flow is your short-term obsession.

There are three critical mandates for cash flow:

  • First, commit to understanding that cash flow is literally the blood in your company’s veins. It’s how you survive in the short term. But it’s also how you thrive. It’s a lot easier to hire or buy new equipment or take on new jobs when you have $40 thousand in the bank instead of $400.
  • Second, you need to manage cash flow and profits, not just pocket them. That’s how you survive in the long term.
  • And third, truly successful businesses consistently generate cash and consistently keep This is how you create a business with value. And when it’s time to sell your company, that consistency is what buyers are looking for.

Bottom Line:

To be a success, you must know how to collect, track, save, and spend the cash you earn. This is the essence of Cash Flow Engineering.

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