Today I wanted to talk about bath tubs and cashflow.
You're probably wondering what do bath tubs and cash flow have in common or how are they connected, so let me explain.
Think about a bathtub and we've got plug and the tap and the vessel that’s holding the water.
Now let’s compare that to a business where the tap is the sales or the income for the business and the plug is the expenses for the business.
As the money comes in the bath level rises, and we get to a certain point. So what we are controlling in this instance is sales coming in and expenses going out.
If you can imagine there's maybe two lines somewhere on the bathtub around it that we want to try and keep our cash balance in so the level of the bath represents how much money we actually have in the bathtub.
That is a something I see a lot of business owners not do so well is manage the level
of the water in the bathtub.
They are too quick to pull the plug out and pay everybody else's bills apart from looking after themselves, so one of the tricks is you don't want to pull the plug out and let all the water go out but we do want to regulate how much water or cash were letting go out of
the business and similarly we want to be regulating the tap.
The tap is all about your marketing and sales to get the cash coming into the business.
We want to get to a point where we can predictably control that tap.
One of my clients at 3pm every day we would check what our bookings were for the next day and decide which taps we needed to be turned on, if at all, to make sure we have enough work coming in the next day.
So there it is that connection between cash and bathtubs.
Make sure you're regulating you're in and out to keep that cash level at a consistent comfortable level for you and your business.
Have a great day.