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Business Class

01 July 2019

Andrew Banks’ Business Strategy 101: Part 3

Andrew Banks’ Business Strategy 101: Part 3

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Andrew Banks

Summary

Part Three of Andrew Banks’ Business Strategy 101 explains how you can keep those revenue streams flowing – including important tips on the brakes and accelerators that let you manage your cashflow from the driver's seat.

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Revenue is the lifeblood of your business, and an effective business strategy depends on you understanding where the revenue for your business comes from, what drives it, and how you can manage it.

Business is not all about taking in as much revenue as you can, as fast as you can. To have long term success, you need to be in control of your revenue and to have sustainable sources for that revenue. 

Consistent base revenue

The baseline of your business is the existing, repeat customers who buy your core products. You should have a very clear idea of what your repeat business looks like.

Locking in your repeat business happens is all about maintaining the quality of your product and also your price competitiveness. 

For a service business, locking in consistent business requires two different approaches from your sales force – which can often lead to a decision  on how you manage them.

Once you reach a certain size you could consider splitting your sales force into “new sales" and “account managers" (hunters and farmers).
  • The hunters are the hungry, adventurous sellers who are incentivised to go and bring in fresh customers and new business. They get inventivised only for this kind of sale.
  • Your farmers are service oriented and they become your account managers. You remunerate them for keeping your existing customers happy and selling them more of what they have already.

New revenue streams

The best way to find new revenue streams is talking to your customers and asking them questions. In a service business, ask your customers: "What are you not getting from me now that you would like to get and would be willing to pay for?"

In a product or retail businesses, try focus groups with a range of different customers or look at what competitors are doing in your market.

  • Brand extension is also an effective measure where you add a related product to your range. If you sell men's shirts and trousers, add some belts and ties.

Whatever business you're in, look at your core customer and what they buy, and then you find a way of extending that so they have more and more to buy from you.

 Cash flow: control carefully, monitor closely

Cash flow is a critical part of your business strategy. The two key ways to control this are the brake and the accelerator on your cash flow.

  • Marketing is the accelerator – that's how you increase your gross sales.
  • The brake is when you continue business-as-usual, focus on efficiency and collecting money.

Business-as-usual depends on your terms of trade. These dictate your cash flow timing. The terms you negotiate with your customer determine how fast you get money in, while your supplier terms are how soon you have to pay for your raw materials. Good cash flow control involves monitoring the gap between when you spend and receive money.

Monitor cash flow closely to make sure it is positive, not negative, unless there's a very good reason - because you're growing fast or you're making an investment in new areas. You cannot risk trading for too long with negative cash flow.

Another way to manage cash flow is via a dashboard that shows you exactly what is going on. You want a live view of what money is coming in and going out, so that you can keep tight rein on what's going on, other than checking your bank statement.

Use an accounting system that has management accounting - not just financial accounting, which just shows you the numbers. There are many available to give you that insight.

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