The Stress Series: Cashflow
Summary
In this episode of the Tilt Podcast, Joel and Jed discuss the significant stress that cashflow issues can cause for business owners. They explore the common mindset of ignoring cashflow problems, the importance of understanding personal financial goals, and the necessity of proactive measures to identify and address cashflow issues. The conversation emphasizes the need for proper pricing strategies and the 'Profit First' approach to ensure financial stability and confidence in business operations. The episode concludes with a call to action for business owners to seek help and resources to manage their cashflow effectively.
Takeaways
Cashflow is often the biggest source of stress for business owners.
Many business owners ignore cashflow issues until it's too late.
Understanding personal financial goals is crucial for business success.
Identifying cashflow problems early can prevent larger issues.
Business owners often have a mindset of entitlement to money from their business.
Social media can create unrealistic expectations about financial success.
The Ideal Life Calculator helps clarify financial needs and goals.
Pricing for profit is essential to maintain cashflow.
Allocating funds for taxes and expenses is critical for financial health.
Seeking help from professionals can alleviate cashflow stress.
Keywords
cashflow, business stress, financial management, pricing strategy, profit first, small business, accounting, goal setting, financial confidence, business coaching
Chapters
00:00 Introduction to Cashflow Stress in Business
03:01 Understanding Cashflow and Personal Goals
05:54 Identifying Cashflow Issues and Solutions
08:48 Pricing for Profit and Financial Confidence
12:03 The Profit First Approach to Cashflow Management
14:56 Conclusion and Resources for Business Owners
Understanding and Managing Cashflow: A Key to Business Success
Cashflow is a leading cause of stress for many small business owners, yet it’s often overlooked or misunderstood. As business owners, we tend to focus on day-to-day operations, pushing financial issues aside, hoping they’ll resolve themselves. However, this approach can lead to mounting problems and unnecessary stress. Let’s dive into why cashflow is critical, the common pitfalls, and how you can take control of it to ensure your business thrives.
Why Cashflow Causes Stress
For most small business owners, the first sign that something is wrong with cashflow is a dwindling bank balance. There’s a feeling of discomfort, yet the solution often remains elusive. Many owners adopt a "head in the sand" mentality, assuming things will improve if they just keep working harder. While optimism is essential in business, hoping for the best without addressing the root cause of the issue rarely works.
Often, business owners feel embarrassed or overwhelmed by the financial situation. They believe they should already understand these fundamentals, but the truth is, no one teaches you cashflow management unless you’ve actively sought that education. This misconception leads many to ignore the problem until it becomes too big to handle.
The Importance of Understanding Your Numbers
One of the first steps to managing cashflow effectively is understanding your business goals and personal financial needs. This is where tools like the "Ideal Life Calculator" can be helpful. It breaks down your financial needs into three tiers:
1. Essential expenses – What you need to cover basic household costs.
2. Lifestyle choices – Subscriptions, dining out, and other personal expenses that enhance your life.
3. Big-ticket items – Long-term goals like vacations, buying a new home, or upgrading your car.
Knowing these numbers helps you identify how much money you need from your business to cover both personal and professional expenses. This clarity can reveal where you may be overspending, either within the business or in your personal life, allowing you to adjust accordingly.
Cashflow and Personal Expenses
A common issue with small business owners is what we call the "leaky bucket" – money flowing out of the business without clear tracking, often to fund personal expenses. Social media doesn’t help either, as we’re constantly comparing ourselves to others, feeling pressured to keep up. This mindset can lead to unnecessary spending, which in turn puts pressure on cashflow.
When you begin tracking where your money is going, many wasteful expenses become obvious. More importantly, this exercise shows exactly how much your business needs to generate to support your personal goals, not just survive.
Getting a Handle on Cashflow
If you're feeling stressed about your cashflow, it’s essential to act quickly. Delaying only exacerbates the issue. The first step is understanding your financial position:
- What’s in your bank accounts?
- Who owes you money, and who do you owe?
- What upcoming projects or invoices are in progress?
By simply identifying these, you can uncover the reasons behind fluctuations in cashflow—whether it’s a delayed payment, a project running over time, or unanticipated expenses.
Pricing for Profit
A common misconception is that the solution to cashflow issues is to cut costs. While cost control is essential, the real fix often lies in proper pricing. Many businesses fail to account for all their expenses when setting prices, particularly non-income-producing costs like rent, vehicles, or administrative staff.
Pricing for profit involves a deep dive into what it costs to deliver your service or product, ensuring that every job is profitable. Once you have a clear understanding of the numbers, you’ll gain confidence in your pricing and feel empowered to charge what your services are truly worth. This shift in mindset allows you to walk away from clients who aren’t willing to pay enough, knowing that you’re no longer working for free.
Profit First Mentality
Another key concept is the "profit first" approach. This involves allocating revenue into different categories from the moment it enters your business:
- Taxes
- Superannuation
- Operating expenses
- Profit
By treating profit as a non-negotiable, you ensure that your business remains sustainable and that you're not constantly dipping into money that should be set aside for other obligations.
Building Lasting Habits
Cashflow management isn’t a one-time fix. It requires building consistent habits. Once you’ve cleared out old debts and instilled good financial practices, these habits will stick with you, helping you avoid falling back into the same traps.
With today's tools, managing your cashflow has never been easier. There are countless apps and software options that allow you to monitor your financial situation in real time. The key is to start now and take action if something feels off.
Seek the Right Help
If cashflow is causing you stress, don’t ignore it. Reach out to the right people—whether it’s an accountant, a financial advisor, or a business coach. While it’s tempting to turn to friends or family for advice, they may not have the expertise you need. Instead, work with professionals who can help you address the problem head-on and build a sustainable solution.
At Tilt Business Coaching, we offer tailored packages to help small business owners like you get a handle on their finances. Whether it's understanding cashflow, pricing for profit, or setting clear financial goals, our team is here to help. Reach out for a free 30-minute consultation, and let’s start reducing that cashflow stress.
