I’ve met so many small business owners who have cash flow issues.
They simply don’t prioritize the bottom line.
There are too many other issues to worry about. Fixing equipment. Covering shifts. Shiny object syndrome.
Running a business without profits is like eating soup with a fork. – Unknown
You keep busy and stay hungry.
We did this for years.
With our restaurants, we saw our sales grow 10-25% for a good 5-6 year run.
But we never made more than 3-5% at the bottom.
So while we kept getting busier and the sales growth stroked our ego, our income didn’t really grow.
We had to keep hiring extra people and paying for additional resources as we grew.
It wasn’t until we prioritized profits after the pandemic started, that we achieved 10%+ profits at the bottom line.
In this article I’m going to show you how we did that.
Everything you do should have cash flow in mind.
The first thing you have to do if you want to start making money with your business is to shift your mindset.
It’s not about how much you can sell. It’s about how much you keep from those sales.
Sure sales cure a lot of ills. But if you aren’t making more money with those sales, what’s the point?
My mindset shifted after reading Profit First by Mike Michalowicz.
It was sort of like Dave Ramsey’s envelope method for business.
To simplify what the book says, you know what your sales are going to be, you know what your fixed costs are.
Determine how much money you want to make and eliminate the rest.
Where your sales are at will limit to some extent how much money you can make but once you shift your mindset to focus on cashflow, every decision you make will contribute to the bottom line.
It didn’t happen overnight but once we started working on this we eventually had a 12% profit year which was nearly quadruple what we normally did.
Let me tell you, operating a business at that level is much more fun than holding your paycheck so that others will cash.
The idea is simple, but the execution is not easy. You have to want it.
There are a few things we did that helped speed up the process.
Dual Pricing
I’m not sure why more people don’t talk about this.
When I first learned about this concept, essentially passing the merchant processing fees of credit cards to the customer, we had the same thought as everyone.
Do we really want to be the assholes doing this to our customers?
But that thought lasted for about 5 minutes once we realized $4-5k a month was going to be added to the bottom line overnight.
We rationalized it by realizing that we were creating jobs, taking risks.
Why should we pay the convenience fee for people to use their cards?
We had just closed down for 6 weeks when the Pandemic started and had some pretty dark thoughts about not even opening up again.
It didn’t get much lower than that so we bit the bullet and setup the cash discount.
You have to put a sign on the door and at the checkout.
From then on a 3.99% fee was added to each check, for us it was $.50-.75 on average.
People didn’t really notice.
Sure there were a few regulars who knew their exact total and noticed right away.
Maybe a dozen people complained. Sure there were probably a lot more than that who just didn’t say anything and maybe even stopped coming.
Our true fans didn’t care. They wanted us to succeed.
With our two locations on any given month we were paying $4-5k in fees that we got back overnight. $60k a year.
What could you do with an extra $60k in your business? Quite a lot I imagine.
Of course, you don’t need to announce it (besides the legal signage requirements). If someone complains, “it helps us keep our prices down”.
Have your staff just ask customers if they are paying with cash or card, then give them the price.
I’ve been served at places and hear “if you pay with cash its $xx or if you pay with card it’s $xx”…don’t do that.
This had the fastest and one of the highest impacts on cashflow, that’s why I’ve listed it first.
Optimize Your Pricing
The next thing that will give you quick and noticeable results is by making sure your pricing is where it needs to be.
When is the last time you raised your pieces?
Do you know what your competitors are charging for the same thing?
Coming from a restaurant background, I always ask others if they’ve ever costed out their entire menu. Almost never.
For any other business, do you know exactly how much it cost to produce whatever you are selling?
If you answered no to any of these or haven’t adjusted your prices in over a year, you’re probably leaving money on the table.
I generally recommend secret shopping your competition quarterly.
Fundamental economics says you should charge at least what your completion is if you are selling the same thing.
Now, if you can simplify and drop your price by at least 50% you have the potential to gain significant market share. But that’s a story for another post.
You should also always know how much your product costs to produce.
At my restaurants, I built a spreadsheet where all we had to do was enter the current prices from our food vendors and each item was broken down into a usable unit and then added to recipes.
It took a while to build. But it was well worth it.
There are several factors that go into determining the best price for whatever it is you are selling.
It can be overwhelming to think about them all but it doesn’t have to be complicated.
If even if you don’t want to put in the work to secret shop, or cost out your product, you can simply pay attention to lagging indicators.
For us at the restaurant, it was daily transactions. If they slowed down a few weeks after a price adjustment maybe we went to aggressive.
If they kept climbing, maybe we didn’t raise them high enough.
If you are selling something with less purchase frequency maybe you watch conversion rates. How many people who visit your website or store that actually buy something?
If you run a service business you probably want to pay attention to your closing rate.
Just make sure are adjusting your pricing frequently to optimize for cash flow.
Build Your Customer Database
Most small business owners suck at asking for their customers’ contact info.
Even if their POS system automatically collects it at checkout, they aren’t using it enough.
It costs a lot to get a new customer to walk in your door and its much cheaper and easier to sell something to an existing customer.
Once you get them in the door give them a reason to share their email and phone number with you.
- A discount on their next purchase
- A freebie
- Anything of value to your customers that doesn’t cost you a lot.
This doesn’t have to be too complicated.
However, in my experience, “sign up to get deals” is not enough to entice people to sign up to your newsletter.
When I first realized that we had no concept of “marketing” I read several books. Each one referenced another so my list kept growing.
After a half dozen or so I noticed a common thread…direct marketing. We needed a list.
To jump-start our list, we went to Home Depot and bought a $400 gas grill. We put it together and stuck it right in the middle of our dining room.
We put up signs everywhere that you had to “register to win”.
Of course, I wanted people to go online and sign up but we also had notepads printed everywhere so they could just write their info down.
I had to transcribe all of this but I didn’t care, I was sold on the idea of a database.
We let the contest run for a month, and we usually did 200-300 transactions a day.
After sifting through thousands of entries and removing all the duplicates, we had 3,000 names on our brand new database!
I was pumped.
For ~$.25 a name, email and physical address, I’d pay that all day.
We tried it again the next year with an iPad but it didn’t have the same effect. I think a lot of the people who signed up the first time were regulars.
However, with our new list, we started sending out postcards once a month with different promotions.
Each time we did our traffic would spike for 7-10 days…now I was really hooked on the idea.
I tried to make it as easy as possible for people to sign up. Pops up on the website. Comment card boxes. A clipboard at the register with a printed spreadsheet.
Once the list broke 10k people it started getting expensive to mail postcards so we switched mostly to email.
A word of caution. NEVER stop building your list or talking to it.
After the pandemic, we rebounded fairly well and we stopped focusing on the database and didn’t really even send out too many emails.
Well after raising our prices a few times to keep up with inflation I noticed our traffic started to decline.
Now we had 5k people on an email list that only heard from us about twice the last couple years.
The list was stale. Our deliverability took a hit because we weren’t sending.
After a few weeks of research (see Evolution Loop), I came up with some new methods and tools to test to rebuild our list. Not entirely from scratch but it sure felt like it.
Whether you hate it or love it, FB has a ton of data. They make it really easy to target your ideal customers.
I also found a neat tool called Manychat, a chatbot that let’s you implement some cool automation and it integrates with the entire Meta suite.
We started spending about $500 per month on FB ads, people would click on it, Manychat would collect email, phone and permission to send FB direct messages.
We’d get people to subscribe for about $2 each and about one third of those would visit to redeem the initial offer.
Everyone who subscribed would run through a 4 month sequence of emails, texts and FB direct messages that educated them all about our restaurants with a few offers sprinkled in.
We’d also send out 2 emails, 2 texts and 2 FB messages each month to the entire list.
It took 13 months of adding 200-300 subscribers each month and communicating with them frequently for our traffic to turn back positive!
Please don’t make the same mistake. Never stop building your list.
Hire to replace certain tasks, not complete roles
Maybe I’m just not great at recruiting, but we never had much success hiring for more than entry level positions.
We tried it a few times. It really only worked out once, and that relationship started slow but the intention was for that person to prove themselves quickly.
Which they did.
Another time we tried hiring a manager who came from a corporate background.
We really wanted them to help us implement some things to help us operate more like a franchise, but they fell into the same comfort trap (and I guess we allowed them to) of running through the motions.
That was an expensive lesson.
The last couple of years we owned the restaurants, we put more of an emphasis on letting long term employees handle more tasks, for a raise of course.
Just like a lot of people I’m sure, we had trouble getting some of our managers back after the initial shutdown from the pandemic.
They were getting paid the same or more to not work…
Luckily we scraped together enough people as we were reopening and I volunteered to take our second location.
It was smaller and I still had a remote job with some responsibilities which allowed me to handle both.
It had been a while since I was actually in operations that much, but it was a blessing in disguise.
Within a few days, I was speaking with one of our cashiers, turns out she was a former GM at Wendy’s!
I never knew this. Not sure if anyone did.
My intention from the start was to find someone to run that store and luckily for us we already hired her, just for the wrong seat.
So after asking her if she wanted more responsibility, we came up with a game plan and she went from $12/hr to $22 plus bonus it about six months.
She took on this role in chunks. It didn’t happen all at once. Shit, I don’t think we even had a full job description at that point.
I just tried to replace myself, one task at a time. So that’s what we did. Some tasks she picked up on faster than others.
Within 6 weeks or so I was able to drop my presence to about two days a week. Then after another 6 weeks I was only there one day a week which eventually led to every other week and then once a month.
Because of her background at Wendy’s she craved tools, training, checklists to perform these functions, which we didn’t have.
I realized quickly how little tools we had for people. We didn’t have a lot of turnover in key roles, so it’s not like we were training people on a monthly basis for these things.
But as she kept asking me questions, it really forced me to pull out what was in my head and put into a process, checklist or some other way for her to consume the knowledge.
The next time you think you need someone to take on an entire role, pause and see who you already have who can start taking things off your plate. One task at a time.
Use Global Talent
As you are thinking about tasks that you can pass off, any that don’t require someone to be physically present in your business, consider using global talent.
You can hire equal or better talent in other parts of the world where the minimum wage is a fraction of what it is here.
What does that mean for you?
You can get full time assistants for $5-10 per hour that don’t call out, clock in on time and are more than capable.
Even if you need someone for higher level tasks you can find quality talent for 20-30% of what you would pay in the US.
A friend once told me, talent is distributed equally across the globe but opportunity is not.
I’ve hired several “virtual assistants” or “offshore contractors” through a platform called Upwork.
They get rated for their jobs and you can see how much money they’ve earned.
If you want to go down this route, I’d recommend starting with a test task.
Maybe hire 3-5 people for a $50 task and keep the best one.
Some may even work in their own time zone which means you can stay productive while you sleep.
I started off hiring writers for my blog. One kept asking for more work and I didn’t have more writing tasks for her.
So I started giving her admin tasks related to the blog.
She eventually handled 95% of the bookkeeping for my restaurants. Just to show you the potential.
Semi-monthly or Monthly Payroll
I’m saving this one for last, it may or may not make sense for your business.
I saw someone suggest it for restaurants and the logic made sense to me.
We were paying every two weeks. This meant there were two months a year that had 3 pay periods.
It was so misleading.
We’d have a few months where we were crushing it then boom that third pay period hits and just wiped out the profits.
Sure we could have recorded accruals on the P&L but that doesn’t affect the cash flow.
Almost every other expense you have is monthly:
- Rent
- Insurance
- Utilities
- Loan Payments
- Software
Why shouldn’t payroll?
When we made this switch it was one of the best things we did to smooth out cashflow.
The profit was a little less each month but we didn’t have those two months out of the year with big losses.
Warning: it takes a little bit of explaining with your staff.
We used semi-monthly payroll where we paid 1st-15th on the 20th and 16th-EOM on the 5th.
So that second pay period could have 16 days and someone could have 96 hours without OT if the days fell in the right spot.
We still checked for OT for any week that ended in the pay period.
But your full time people will consistently get 81-90 hours without OT. Just be prepared to show them pay slips where you check for OT.
Most people caught on pretty quickly, there was just a few people that always questioned it. But let’s be honest, they were going to question their paycheck anyway.
This was a small price to pay for the benefits we gained.
Conclusion
If you aren’t making the money you want or your business isn’t at the level you want, I encourage you to start working down this list.
One step at a time.
Action gets rewarded.